London & the City


The importance of the City of London and financial services to the UK is difficult to overstate, which is why understanding its post-pandemic and post-Brexit prospects is so important.


In 2019, financial services contributed £132bn to the UK economy, 6.9% of total output, plus the sector accounted for 1.1m jobs according to the House of Commons library.

The sector represents a broad range of companies and services covering many areas including the retail market, wholesale banking and trading, the Fintech space and businesses providing all sorts of back-office systems and outsourced services.

For regulated businesses in particular, the rules governing their operation are crucial, so even during the pandemic, Brexit has loomed large.

It was originally thought that an extended form of equivalence could form the basis of a new relationship between the EU and the UK, but as discussions have stalled, there is a sense that the City and financial services are no longer counting on any significant agreement on new forms of equivalence to underpin their business decisions.

Dealing with Brexit

Bird & Bird partner and member of the firm’s International Finance and Financial Regulation group Trystan Tether says: “There are a small number of areas where equivalence is possible under existing legislation. But it doesn’t cover the vast majority of financial services and it is never going to be anything like passporting. Those people who want to do business in Europe have mostly created their own subsidiaries.

Rathbones Unit Trust Management chief executive Mike Webb says: “A year after the initial vote to leave we took a decision to assume a fairly hard Brexit and as a result, we restructured our offshore funds. In the main, most asset managers had offshore capability, so while it was annoying, it hasn’t damaged our European and international sales. We are in a good position to continue doing business there.

Some commentators have suggested the UK might create a lighter regulatory regime, but Tether says he is seeing something different.

“We have seen the FCA stepping up to the mark and saying: ‘We are here, and we want you to be one of the best regulated communities of financial service providers in Europe.’”

Trystan Tether, partner at Bird & Bird

Regulators have also been keen not to have anything go wrong.

Tether says: “They want to make sure, for example, that electronic money issuers and payment service institutions are taking good care of their capital position and in full compliance with their regulatory safeguarding obligations. They didn’t want a situation where Brexit came along, and then we had UK entity collapses.

Government and regulators are asking a lot of searching questions about regulation, but Tether does not expect a revolution.

In terms of whether we use our new-found ability to revise the existing regulatory framework, there does not seem to be a desire to rework the whole canvas. Although this may change over time, at the moment it is more about getting a somewhat finer brush out and adjusting parts of the picture – streamlining things, making them clearer and making adaptations to provisions which were always less well suited to the London market. By contrast, where new regulation is needed going forward (e.g. for crypto assets or in relation to digital operational resilience), it will be interesting to see how far the UK adopts a parallel or significantly divergent approach to that of the EU.

Some commentators do foresee a significant shift in emphasis however.

Consumer campaigner and Financial Inclusion Centre director, who is also a former non-executive director at the FCA, Mick McAteer, says: “We will see regulation split into three. Much of the focus will be international, with policymakers aiming to help the City build on its already established global role to exploit economic trends in Asia for example. The UK will therefore want to influence international regulatory standards as much as possible.

You’ll have domestic regulation. I worry we will see pressure for deregulation on the domestic front. But I do think in some way, maybe not formally, the UK will have to remain aligned to EU standards as well.

Pandemic recovery

But if that is about Brexit, what about the broader economy and the pandemic recovery?

Many financial services businesses are now sounding quite bullish.

Guardian Financial Services chief executive Katya MacLean says: “What is very clear is that businesses involved in life insurance, which is not known as the most modern of industries, have been very agile in moving to a remote world.

Efficient new ways of working have been tried across the market and many will stick. Hurdles have been overcome and the market has recovered to previous levels. As a new entrant with modern technology, that has been easier for us than most, but credit is due to all market participants.

Most importantly, life insurers have paid out £202m of death claims for COVID-19 in 2020 alone and we can all be proud that we were there to protect families in these dreadful and unanticipated times.

With new efficiencies, higher enthusiasm from potential customers and lots of strong stories about how we helped families in the pandemic, the future of the industry looks very bright particularly for those of us who do not revert to old ways but seize the opportunity to be better.

“Whatever we return to, it will never be the same again. From an economic perspective we expect a strong recovery on the proviso that we don’t see another lockdown. We are seeing the sort of classic stocks we would typically see in equity income funds come back into favour. They have reset their dividend policy and balance sheets are strong. But that won’t be the case for all types of companies. Some will struggle back out of this, with huge levels of debt.”

Mike Webb, Chief Executive at Rathbones Unit Trust Management

Mike adds, “Buying habits have changed forever. Yet we are looking forward to a decent recovery. We will watch the level of inflation. It has jumped short term, but whether that is indicative of a long term trend, remains to be seen.

Tether is particularly positive about Fintech. “It’s always been “remote”. It’s not dependent on face-to-face interaction in branches. In terms of client work, I haven’t noticed any real drop off during the pandemic and there has been tremendous enthusiasm for implementing new programmes.

Suppliers and customers in the financial services space are also getting increasing clarity on cloud and use of technology through new regulations.
For example, the European Banking Authority has issued guidelines around outsourcing. The Prudential Regulation Authority has followed up with its own supervisory statement which takes effect from 31st March next year.

Christian Bartsch, Bird & Bird partner and co-head of the firm’s Financial Services practice, says: “Through its supervisory statement, the PRA has recently provided financial services entities with further guidance on how to address certain issues that often crop-up on major outsourcing deals.

Given the amount of regulation that is coming through, he sees echoes of the first days of collaboration between start-up Fintechs and larger players, where the former sometimes had very attractive tech but less up to date knowledge of applicable regulations, particularly when constructing global deals.

There are also interesting points of potential divergence however, which relate back to the relationship with other markets.

For example, Germany’s financial services sector is facing the potential for more sophisticated outsourcing rules with a bill originally presented by the Federal Ministry of Finance (and now a draft bill of the Federal Government) which proposes that certain regulatory measures will be directly applicable to those companies providing outsourced services.

The UK regulators will no doubt look at these and related developments closely, comparing its approach with those of its EU counterparts,” he adds.
Bartsch says that there has also been high demand for advice around payment services.

He adds: “Certainly, from the clients and entities that we’ve been interacting with, those that have progressed their digitalisation agenda to create things that have real social utility to consumers generally – those are the ones that are going to benefit the most.

Transparency, integrity and doing the right thing

It does feel as if there will be changes in what might be called ‘the plumbing of financial services’ including around data.

CEO of Moneyhub Samantha Seaton says: “The Open Data initiative is all about openness and consumer control. At Moneyhub we have always been about explicit consent, as it is the foundation of trust.

That could be a significant driver of change, but more visible has been the pandemic itself and it has not all been good news.

Back to the office

In January this year, Bird & Bird, in partnership with Opinium, surveyed 400 senior decision makers in businesses based in London and the South East of England.


The survey revealed that 46% of senior decision makers believed that working from home has had a negative impact on business performance, while 50% felt that less face-to-face contact has even had an impact on board performance.

There is now increasing appetite to get back to the office or at least move to a hybrid model and the survey showed that one third of financial services businesses are already recruiting at increased levels.

“Many financial services businesses will be considering their approach to flexible ways of working going forward, considering issues such as health and safety, business protection and regulatory compliance and the creation of sufficient ‘touch points’ to ensure appropriate oversight of their workforce.”

Christian Bartsch, partner at Bird & Bird

Organisations generally will be particularly concerned about confidentiality and cybersecurity, for example in terms of data breaches. We’ve given a lot of advice to institutions around how they actually deal with proposed new ways of working to mitigate risks.


That is borne out by Bird & Bird’s survey. 60% say remote working has increased the level of risk to their IT infrastructure and 46% have reported an increase in the number of cyber-attacks in the past 12 months.

Yet disruption could carry the seeds of opportunity as well.

Bartsch says: “There is an opportunity for the UK financial services industry generally to leverage its expertise in digital finance. At Bird & Bird, we are used to working at the intersection of where technology meets financial services regulation, so working with clients to deal with disruption in the sector and looking at new markets is a core part of our business.

“If those operating in the sector get a good balance between the right tech, used efficiently and with a keen eye on the regulatory environment in which that tech is deployed – those are the entities that are going to be well positioned to take advantage of opportunities in the years ahead.

External contributors

Katya MacLean, Chief Executive at Guardian Financial Services

Mick McAteer, Consumer campaigner and Financial Inclusion Centre director (also former non-executive director at the FCA)

Samantha Seaton, CEO of Moneyhub

Mike Webb, Chief Executive at Rathbones Unit Trust Management

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