PwC’s new leader of FS: ‘The outcome of Brexit on financial services is still unknown’

Last month Isabelle Jenkins was named the new leader of financial services at PwC UK, after spending 17 years as a partner at the firm.

Jenkins replaced Andrew Kail, who held the role over the last four and a half years.

In her first interview as leader of financial services at the Big Four firm, Jenkins talks to City A.M. about her new role, and what lies ahead for London and the financial services industry, as they adjust to challenges brought about by Brexit and Covid-19.

Congratulations on the new role – what are your responsibilities as leader of financial services?

“The leader of financial services at PwC is very much a market-facing role, and my job is to make sure that we really understand our financial services clients, who the clients are in the marketplace that we should be working with, to understand what their key issues are, and to make sure we have the right skills to be able to help clients solve their most important problems.

Read more: Isabelle Jenkins named PWC’s new leader of financial services

What do you think is going to be your first major challenge?  

“We’ve seen big changes in the operating models across financial services. You take something like cash, for example, the amount of cash that was withdraw from ATMs in April 2020 was half of what was taken out in 2019, so there are some things we were all, as an industry, expecting to happen, and wanting to happen, but Covid-19 has accelerated them; a lot of customers who were reluctant to use digital channels didn’t have an option during the crisis, for example – they’ve had to use digital channels, and they found that actually they really liked them and will use them going forward.

“Coming out of Covid-19 I think we’re going to see a lot of disruption in the industry. People really need to look at their business models and operating models. With lower for longer interest rates there are some products such as mortgages where it becomes hard to make money from them. It becomes a scale game.

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“We’re going to see a lot of changes to business operating models, and we expect to see quite a lot of M&A in the marketplace, because this is going to put a big squeeze on the mid-tier and smaller players.”

Are we likely to see smaller ends of the marketplace not make it through the pandemic?

“Yes. Long-story short: you’ve got an industry that’s overly complex, you have a lot of costs, and now you’ve gone into an environment where it’s going to be even harder to make revenue.

“I think the environment now and over the coming years will really challenge some of the business models and some of the business models that the start-up banks were focused on, for example, become harder to make revenue.”

Read more: Revolut applies for UK banking license

What about Brexit? Will that have an impact?

“Yes, it will have an impact. We had a deal announced that doesn’t talk about financial services. On the one hand, because of the way financial services organisations work, they all had to assume a worst case scenario, so they all had to prepare for a no-deal Brexit – that doesn’t mean it’s what they wanted, but they had to be in a position where they could continue operating in Europe if they needed to.

“Most organisations had taken the decision that they needed to continue operating in Europe, and therefore they had to set up a legal entity in Europe, if they were a bank they had to get a banking license, and they had to set up enough of a presence and operations that was acceptable to a regulator. So across financial services they were ready for it. When it flipped to January 1st everything kept working, and we saw £5bn of euro trading moved from being on the UK stock exchange and into Europe – that’s a big volume of business.

“Everybody is waiting now to see what happens. There was a memorandum of understanding, which is scheduled to be agreed by the end of March, but that’s still only a framework. Then there will have to be equivalence discussions, which is nowhere near passporting, which we had before. Equivalence is done on a product-by-product basis, so it’s like a patchwork of agreements, rather than one big agreement that just says: ‘If you’re a UK financial services firm you can do this in Europe, if you’re EU firm you can do this in the UK’.

“Did everything stop in January? No. Did we see a considerable move of business into Europe? Yes. Everybody is still waiting to see what happens.”

Read more: UK to start talks with Switzerland on post-Brexit financial services deal

What does London’s future look like?

“You’ve got to look at the scale of London against other European centres. Two million people are employed in financial services in the UK, and a million of those are in of London.

“The next biggest financial services centre in Europe is Frankfurt – with 75,000 people working in finance. It’s just a huge difference in scale. London will continue to be a really important global financial services centre, but it has to evolve, and there needs to be investment made.

Read more: How many Covid-19 infections are there in your London borough?

“In 2018, we did a piece of work with The City UK, and found there’s nowhere else in the world where you have the investment banks, the asset managers, the fund managers, and the stock exchange, even in the US it’s split between Washington, New York and Chicago. There’s nowhere else that has the concentration of so many elements of financial services all in one place. London is still going to be really important for financial services.

“As for commuters, I think working models will change, I think the office becomes more of a place you go to collaborate and work together. When there’s a big meeting and we all need to be face-to-face, people will come into London.

“The whole thing about people working from home and being lazy has gone. We’re not going to completely abandon the office, but I do think people will be more accepting of hybrid working models.”

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