The Risks of Brexit: City Banks' Staff Exit Britain; HSBC, UBS to Shift 1,000 Jobs

U.K. Prime Minister Theresa May laid out in full her plans in the imminent Brexit negotiations. The message was crystal but it cannot be denied the potential effects and hazards Britain will face as this process advances, particularly to the banks and financial services industry.

On Tuesday, May stated that she disapproves of the idea of membership of the single market. It would mean acceptance to the '4 freedoms' of goods, capital, services and people which means complying with the European Union's rules and regulations that implement those freedoms without entitlement to vote for what those rules and regulations could be. Such would defeat the purpose of leaving the EU.

According to Bloomberg, Britain's close trading relationship with EU has served the country well for more than 40 years. The continued membership in the world's biggest single market has boosted trade between the U.K. and the rest of EU by 10 percent. Post-Brexit, Britain's national income might obtain 2 percent lower in the longer term.

The financial services industry is at a disadvantage and just a day after May confirmed that U.K. will be leaving the single market, two of the largest investment banks in London are preparing to move their staff outside U.K. Accordingly, HSBC chief executive Stuart Gulliver and UBS chairman Axel Weber told reporters that they are already planning to move 1,000 of their employees in the U.K. to Europe. Insurers are also quick to join as Inga Beale, the CEO of Lloyd's of London, said she is moving to establish a subsidiary in the EU to preserve 11% of the firm's sales.

The banks hasten contingency plans because May's strategy for Brexit is likely to leave them without "passporting rights", which allows financial firms to sell products and services across the bloc. On the other hand, U.K may be forced to rely on "equivalence", where cross-border selling is allowed for as long as a non-EU country's rules are judged to be as rigid as the EU's. Experts says that such is a complicated and fragile arrangement that demands careful regulatory coordination.

CNN noted that much of the global trade in euros happens in London. The city handles transactions worth trillions of euros such as currencies, shares, bonds and other financial contracts. Some of that business will most likely now move to EU. In effect, the loss of business for bankers is likely to trickle through the rest of the economy.