Recovering markets won’t bring joy to all players

February 23, 2023

London is showing few signs of losing its crown as Europe’s leading financial centre. Globally, it’s still not far behind New York; in some respects it may even be ahead.

Post-Brexit, the European Central Bank is understandably unhappy that the world’s second largest reserve currency, the Euro, depends so heavily on a financial centre outside its territory. Nonetheless, although some areas of FX trading and clearing have shifted to other European centres, so far it’s been business as usual for London. It needs to be: financial services have grown to become one of the largest segments of UK national income in recent years and, with looser ties to its closest trading partners, the sector is vital to the nation’s recovery and prosperity.

Banks, securities firms, fund managers, insurers and all the specialist businesses that support them are far from easy to manage and grow, not least because they have to flex amid constant regulatory and economic changes. They are endlessly overhauling their ownership structures, refocusing their business models and having to generate sustainable income against a background of higher inflation, rising costs and low visibility in markets. All under close scrutiny from a range of authorities.

Technology has brought problems as well as solutions. While it has acted as a great enabler – electronic trading, online banking, screen-based interaction and even compliance – two clear, unintended consequences are (i) a further demolishing of barriers to entry in markets that already have too much capacity, and (ii) the rapid rise of cybersecurity breaches and institutional grade fraud.

For smaller market participants, in particular, the time and cost incurred to undertake ESG-driven risk management and disclosure requirements can become an existential problem when added to growing competition, narrowing margins and tech challenges.

Sale to a consolidator or exit via a voluntary liquidation will be the main options for many. Specialist lenders, leasing businesses, wealth managers, and insurance brokers are already being absorbed by financial buyers, mainly private equity firms, while others are throwing in the towel and at the same time are still in one piece before they face calls for additional regulatory capital, or have to meet other higher costs.

Whether selling or closing, it is vital to adopt a planned, managed approach with professional advice that might cover:

  • Unwinding of contracts
  • CVLs / MVLs
  • Schemes of Arrangement
  • Forensic accounting
  • Investigations of financial crime
  • Tax treatment of trading positions
  • Support for market participants in regulatory investigations
  • Issues involving the Financial Services Compensation Scheme
  • Liaison with the Prudential Regulatory Authority and Financial Conduct Authority

Partners or Directors of financial services businesses facing trading or regulatory difficulties should act quickly to assess options for closure or restructuring. Don’t hesitate to get in touch with us at Buchler Phillips for a free initial consultation.

Written by our analysts’ team at Buchler Phillips, an independent boutique firm with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.

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