Europe has 23m little and medium-sized business. They are the foundation of the European economy, representing 99pc of all business in the EU and 67pc of work. That totals up to around 58pc of gross value included the non-financial economy.
But, as a Boston Consulting Group (BCG) report commissioned by AFME exposes, nevertheless much interruption Brexit might trigger, it will not always huge business which suffers the most, but rather the little and medium companies who will be propping up our post-Brexit economy. This uses to SMEs in the remainder of the EU along with in the UK.
We concerned this conclusion after evaluating how business and financiers in the existing EU28 might be impacted by the effect of a difficult Brexit on the wholesale banking services they take in. BCG’s scientists spoke with more than 62 presidents and treasurers of corporates, financial investment companies and SMEs, in addition to 10 market associations which represent a large range of business and sectors. Exactly what stood out from the actions was that SMEs might find themselves the hardest struck unless they do something about it now. There are 3 factors for this.
Initially, the banking-related impacts of a difficult Brexit might result in a greater expense of capital for SMEs and more limited access to wholesale banking services. While the specific figures will differ, there is a genuine danger of fragmentation unless market and policymakers can collaborate for an option that benefits EU companies and customers.
Second of all, while the scale and bargaining power of individual big corporates and financiers suggest that a lot of them would have the ability to browse the wholesale banking effects of a tough Brexit, SMEs would unquestionably find it harder. That’s because not just are SMEs most likely to find their access to wholesale banking services limited, but the expense of making modifications– such as forming brand-new banking relationships– can be product for them. SMEs have the tendency to pick a local bank and remain faithful to them. In truth, 60pc of SMEs presently just use one bank for their business banking because of greater expenses and higher problem than big corporates when constructing brand-new relationships.
In case a local UK bank selects not to develop a subsidiary in the EU27, or that a tough Brexit leads to banks needing to change their services for existing clients, establishing a brand-new banking relationship might be lengthy, taking anywhere from 6 months to reproduce exactly what SMEs presently carry out in the UK.
Third– and most importantly offered the above– 55pc of the SME individuals who commented in the report confessed that they had actually made no strategies up until now for Brexit. Worryingly, the presumption from corporates– little and big– is that their banks will continue to offer funding and exist in the very same guise. Some 44pc of the SMEs spoke with anticipate their banks to soak up any extra expenses brought on by Brexit.
Nevertheless, this might be excessively positive. The loss of passporting might trigger some banks running through a UK banking licence to withdraw from the EU27, lowering the capital readily available to business and financiers. Other banks are most likely to use subsidiaries to preserve cross-border operations, but this might be pricey. We can not presume that the pipes underpinning the banking system will continue to work flawlessly. The most likely outcome is that the European monetary and banking markets become less incorporated– eventually restricting access to markets and raising expenses.
To alleviate such unfavorable results of Brexit on end users, our interviewees made a variety of recommendations. These consisted of a shift duration to provide banks and their customers time to change, in addition to “grandfathering” of existing agreements in order to reduce the legal and functional disturbance to banks and their customers.
Above all, organisations informed us that they want the status quo protected. The bulk hope Brexit settlements will lead to comparable levels of access to and expenses of wholesale banking services as they have today. They feel highly that the political settlements need to bear in mind the effect of Brexit on genuine economy end users. The ongoing stability of pan-European capital markets and future financial development depend on it.