The UK officially stopped being a member of the European Union (EU) on 31 January 2020, bringing an end to more than three years of “Brexit” VS “Bremain” debates and ending about 50 years of economic co-dependence with the EU.
The UK-EU economic relationship is undergoing an 11-month transition period in which economic relationships remain unchanged while both parties negotiate new trade agreements.
We caught up with Alon Rajic, founder and CEO of Finofin Ltd which owns and manages MoneyTransferComparison. MoneyTransferComparison is a leading comparison and review site in the foreign exchange space, providing insights about more than 50 money transfer providers and focusing specifically on SMEs and expats.
This interview provides insights into Alon’s thoughts on the future of trade and economics between the UK and the EU with a special focus on how the financial services industry and their customers will fare if and when new trade agreements forged.
Many seem people seem to think that Brexit reflects growing populist trends globally, what are your thoughts on this?
“I agree. Brexit made no sense for either party involved. The Brexit campaign was targeting people who felt their (legitimate) concerns were unaddressed by leadership.
The campaign hit all the right spots with its target audiences. The actual facts became insignificant for these referendum voters.”
As someone active in the foreign exchange space, what are the potential currency tailwinds or headwinds that individuals and businesses are likely to experience after Brexit?
“I am expecting next year to be a rocky ride for the Pound Sterling. Every piece of news suggesting progress in the UK-EU trade agreement will skyrocket the Pound rate, while every bit of pessimism (whether derived by ill-omen news, or a result of a continuous lack of progress in the trade negotiations) will lower the Sterling’s value drastically.
Add a large degree of uncertainty about UK’s growth next year, combined with lack of certainty on whether BoE will cut the interest rates further, and you end up with a 10% upside or downside for the year – depending on how things turn out. “
How can individuals and businesses take advantage of currency tailwinds or protect against currency headwinds during the transition period?
“Speculators who want to benefit from the expected Volatility of the Pound Sterling are going to be literally gambling their money away. It’s difficult to even know whether the Pound is overvalued or undervalued at the current moment, let alone in 3 to 12 months.
Protecting against movements is always recommended, but it can prove particularly wise when your business is exposed to a currency like the British Pound.
Using Currency Forward Contracts to fix today’s rate for up to 3 years down the line is the recommended solution for the majority of businesses, but there are of course a variety of other, more advanced, solutions available. “
How will the financial services industry in the EU and UK fare after Brexit?
“Brexit so far has been hellish for most overseas payment providers in the UK. For companies like Currencies Direct, WorldFirst, Global Reach Group, or Moneycorp - British overseas property buyers are their bread and butter.
Considering that the Pound rate against the Euro is still remarkably lower than it was pre-Brexit referendum, and the fact that there are uncertainties about the transaction and ease of movement between the UK and the EU - there are simply fewer Brits who are interested in buying in Spain or France (the two major countries for British expats and property investors), and hence – fewer currency exchanges required.
The day after Brexit is fully applied at the end of 2020, smaller payment providers in the UK and the EU who have limited global presence (a single local office), will be the ones taking the most substantial hit.
Without dual licensing in both the UK and the EU, they would not be able to onboard clients from both regions, as opposed to the situation today, and would be forced to stop accepting and servicing some of their clients. “
What sort of difficulties might arise in transferring funds in and out of the UK or the EU after Brexit?
“I am not expecting any persistent difficulties moving funds between the UK and EU after Brexit, either via banks or through money transfer providers, but there could be some technical issues in the very few weeks. “
How well do you think financial services firms will be able to attract/retain top talent after Brexit gets underway?
“I think financial services firms will always appear like an attractive option for young professionals. Whether they take a hit or not, they are still highly profitable and highly regarded establishments with a strong appeal, which attracts strong talent.
The talent pool will be smaller, though! the more difficult it would be for EU residents to work in the UK - the smaller the pool will be. That means increased competition on British talent, which is likely to lead to a consolidation in the market as the larger firms will scoop the majority of talent, starving the smaller startups. “
In your opinion, how well prepared is Bank of England to prevent the UK economy from slipping into a recession after Brexit?
“To my best judgement the BoE has been managing the situation in the most optimal way possible.
Right after the Brexit referendum showed the result “Leave”, the BoE provided accurate, frank, and straightforward predictions on the potential impact of Brexit on the economy and have prepared themselves for the worst-case scenario (which was the no-deal Brexit).
The new head of BoE starting from March 2020, which is currently heading the Financial Conduct Authority, will be well-aware of the issues and risks the British economy is facing (and particularly, the risks for financial service providers and banks). “
What would say is the biggest geopolitical risk and opportunity from Brexit for the rest of the world?
“Brexit can start a domino effect in the EU. Additional countries opting to leave what will be a much-weaker EU. Another significant risk would be towards the UK breaking into smaller countries as pressure steadies around a second independence referendum in Scotland. In the longer term, I wouldn't be surprised to see a referendum for the unification of Irelands.”
What are the odds that the EU and UK will agree to a new trade agreement during the ongoing negotiations?
“The odds of agreeing on something within these 12 months is quite high, in my humble opinion, but the chances of the UK and the EU agreeing on something which will keep the UK in the EEA seem unlikely at this point. That means that per definition there will be more restrictions on trade than there are today, but what exactly is unknown and difficult to predict. “
