A British vote to exit the European Union has sent shock waves through the financial markets, pushing the pound into freefall and raising profound implications for City jobs, regulations, and the country's nascent fintech industry.
Sterling saw its biggest one-day fall in history, plunging to $1.33 - its lowest level in more than 40 years - as markets reacted to the news. Sterling initially hit $1.50 as early exit polls indicated a narrow victory for the Remain vote, but as the results trickled in the pound began its precipitous tumble.
In the days leading up to the historic vote, City bosses had issued dire warnings of the consequences for the UK's financial markets and London's burgeoning fintech industry in the event of an exit. JPMorgan has already issued a memo to staff saying that some jobs will have to be relocated over the coming months, while Britain's banks have taken a huge hit on the stock market, losing up to 30% of their value as the FTSE slipped by 11.3% in early morning trading.
Simon Black, CEO of the PPRO Group believes the narrow 52%/48% victory for the Brexiteers could cost the UK tax authorities £5 billion in lost revenue over the next ten years as the country's estimated 500 fintech companies assess their options.
"As well as London being a global financial hub, the UK offers specific regulatory benefits, that when combined with a massive pool of talent have made the UK the natural choice to be located both from a European perspective and for some companies, even as a global base," he says. "But with their status as financial institutions recognised across the EU and EEA under threat, all of these businesses will not wait for trade deals to be resolved. They will immediately begin forming plans to relocate at least some of their operations, and the majority of new jobs will be outside of the UK."
With EU passporting rules set to be thrown out of the window, many influential observers have a pessimistic view about London's chances of retaining its status as the fintech capital of Europe.
It will take at least two years for Britain to negotiate terms of retreat from European Union membership, but in the meantime the vote casts a dark cloud over a host of issues, with implications for the proposed merger of the London and Frankfurt stock exchanges and the response of Britain's banks to important EU Directives, including MiFID II, PSD2 and the financial transaction tax.
While the LSE and Deutsche Bourse have expressed their determination to press ahead with the merger, the Financial Conduct Authority has warned of "significant implications" for the UK's financial services industry and regulatory reform agenda.
"Much financial regulation currently applicable in the UK derives from EU legislation," says the watchdog. "This regulation will remain applicable until any changes are made, which will be a matter for Government and Parliament. Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect."
Anthony Brown, the chief executive of the British Banking Association, says a significant amount of contingency planning has already been undertaken. "Any consequences of the referendum result will take some time to resolve and any changes to banking will take place over several years," he says. "Banks will now assess what the result means for their customers and staff in the long term."