By Liv Eirin Danielsen
Whilst Brexit continues to have huge consequences for the UK and the EU, its reverberations are being felt elsewhere too. Switzerland is a small country, but a giant in international banking, and with the UK being one of Switzerland’s largest trading partners, the implications of Brexit on that industry have been significant.
One of the main challenges for Swiss banks has been the potential loss of access to the EU single market. Swiss banks now face stricter regulatory requirements and a higher risk of losing their EU pass porting privileges, which allow them to operate freely within the EU, as the UK is no longer a member of the EU.
In the years before Brexit, many studies and estimates had suggested that more than ten thousand jobs would be moved away from London to other financial centres such as Frankfurt and Paris. “In the end relatively, few jobs were moved. Definitely fewer than expected,” said an official at a major Swiss bank who asked not to be named in the story.
It is important to differentiate between the different types of banking. “The impact was largest on investment banking and less so on wealth management and private banking. Because only two leading Swiss banks for investment banking are really active globally, namely UBS and Credit Suisse, only a small number of Swiss banks were impacted.“
In private banking the UK and Switzerland are both competitors, as well as peers in some cases. They both compete for the same type of clients. However, since Brexit, both the UK and Switzerland are so-called ‘third countries‘. Both are not in the EU and therefore share the same interests against the EU. “In a way you can see that these two countries are competitors as well as allies.”
A study by the University of Reading shows that the Brexit vote had a significant effect on the intraday correlation and volatility transmission among major currencies.The British pound has lost 17-18% against the dollar and the euro since the UK’s vote on EU membership in June 2016. Other asset prices have also swung wildly. Volatility will likely continue to dominate in the near future. This means that the pressure on currencies like the Swiss franc is rising. A highly pressured Swiss franc can have a significant impact on the Swiss economy. Swiss companies continue to warn that supply-chain pressures, rising costs, wage increases, high inflation and recession fears will affect them. The Swiss national Bank (SNB), which was ready to act in response, has so far managed to contain the volatility.
In addition, British clients shifting assets abroad to avoid a disruptive Brexit are increasingly using Swiss private banks. Wealthy Britons sought to safeguard their assets against the potential of a high-tax Labour administration taking office shortly.
Brexit has led to increased uncertainty about the future of the UK-Swiss relationship. “As a result of Brexit both the UK and Switzerland were clear in agreement that the close level of economic cooperation should be continued.” Therefore, the Swiss government has early on implemented the ‚Mind the Gap‘ strategy which entailed preserving the free movement of people and even enhancing the cooperation between the UK and Switzerland.
On 30 June 2020, the then UK Chancellor of the Exchequer Rishi Sunak – who has since become Prime Minister – and Federal Councillor Ueli Maurer signed a „Joint Statement“ on strengthening ties between the two nations in the financial sector. The future of this partnership is unknown, as the UK negotiates new trade deals with the EU and other countries. This uncertainty is likely to have an impact on Swiss banks as they rely on the stability of the Swiss as well as the international economy.
Brexit has opened up opportunities for Swiss banks to expand their market access. Over time, the impact of Brexit will unfold, as the UK negotiates new trade agreements and as the new regulatory landscape evolves, Switzerland remains resilient by adapting to the changing landscape of the financial sector.