David Miles, Professor of Financial Economics at Imperial College Business School, spoke at the House of Lords EU Financial Affairs Sub-Committee on 29 January.
The Committee put questions to David and Professor Niamh Moloney from the London School of Economics on the potential impact of Brexit on the financial services sector.
Examining the effects from both the perspective of the UK and the European Union (EU), the discussion explored to what extent the EU relies on the UK financial services sector, how this relationship may change after Brexit and what effect this could have on UK GDP.
"I think in some areas the EU relies very heavily on UK financial services. For example, probably 60-70 per cent of foreign exchange transactions that are relevant to the euro come through London," said David, adding that a "very high percentage" of European transactions in certain types of derivatives also go through London.
He noted the size of net exports of financial services from the UK to the EU alone is in the region of £30 billion, equivalent to 1.5 per cent of UK GDP.
David also explained his concerns over the potential pressure to conform to EU regulations under the proposed "equivalence" system, as well as the possibility that financial centres in the EU may use Brexit as an opportunity to wrangle some financial activity away from London, which could have a knock-on effect on other industries.
"If there were to be another European centre where most of the activity does end up and it doesn't get fragmented across lots of different places, maybe the economies of scale that generates means that it really becomes a much more efficient place to do all kinds of business," he said.
However he stressed that the situation should not be overplayed.
"I think it's sometimes easy to exaggerate how significant all this is, economically," he said. "My guess is the situation will be lose-lose for both the EU and the UK.
"The UK will lose a little bit... say £3-5 billion a year - not good - but it's not a huge loss."
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Brexit could mean 5 billion pound tax loss from finance - academic (Reuters)
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