After the UK voted to leave the European Union, the political implications were staggering, but so were the ramifications in every part of the European financial sphere. London had been widely recognized as Europe’s financial capital could suddenly be knocked off its pedestal. Money, regulations and influence crossed the thin dividing line between a number and a concept and started moving in unpredictable ways. Now, the EU and the UK are in the process of learning to exist on the newly defined financial conditions.

Brexit and subsequent changes are sharpened and areas covered include the short term impacts that Brexit had right after it happened, the middle-ground and the long term where changes are still unfolding and may define the future of EU finance.

Immediate Disruptions: Adjusting to a New Reality

The dreary impact of Brexit was first felt in the financial center of the world, the moment the UK declared its exit. While some of them predicted certain chaos, others expected much more organized transition. The reality landed somewhere in between, with several immediate effects:

• Capital flight: A lot of banks and investment companies relocated some operations from London to cities such as Frankfurt, Paris and Dublin. The reason? They had to continue integrating themselves in the EU’s single market, and merely operating in London was insufficient.

• Loss of passporting rights: The previously retained so-called ‘passporting rights’, which enabled UK based financial institutions to offer their services across the EU without additional formalities, were taken away. To stay in business in Europe they were forced to create new legal entities within the EU, which led to numerous and often expensive reshuffling.

• Market volatility: The pound was volatile throughout, dropping and rising in response to every political decision and all the various trade agreements. There was a lot of learning going on in organizations as these organizations tried to figure out what they should expect in the coming future.

These early shocks showed just how emergent the UK and EU financial linkages were and it provided the base for far more profound and prolonged shifts in the structures of Europe’s financial landscape.

The Emergence of New Financial Centers in Europe

This realization came in the wake of the uncertainty faced by London, several European cities posed themselves as the new financial hub of the EU.

• Frankfurt: Having the EC­B already placed it on the map of significant financial centers, Frankfurt rose to become the primary destination for the banks seeking a new home after London. The inclusion was made easier due to the stable economic environment and a stable political environment in Germany.

• Paris: The French capital was not going to be left out of this kind of experience. The French government began paving the red carpet starting from tax exemptions to business reforms to lure financial firms to locate their companies in Paris.

• Dublin: Dublin, Ireland with its English speaking population and attractive corporate tax rates emerged as another preferred locus for UK based entities that wanted to continue their ease of access to the European Union. This was the case especially with firms seeking to move out of London where Dublin proved most appealing.

This redistribution of financial business has somewhat dimmed the sheen of London’s preeminent position as Europe’s financial capital. However, even with these up and coming rivals London maintains a considerable amount of global power.

The Regulatory Shift: Why Managing Two Different Sets of Rules is a Huge Challenge

Brexit was not only an exercise of geography but also a revolution in regulation for financial firms. Subsequently, the regulatory course of the UK and EU start to differ since the UK now has its opportunities to decide its rules on finances. But this isn’t without its complications:

• Dual compliance costs: The UK companies as well as the companies operating in the EU now have to deal with two different regimes. This led to numerous compliance costs, as well as enhanced the complications of the cross-border transactions.

• Fragmentation risks: If this trend of divergence in UK and EU rules is maintained then it is possible that the European financial system will be fragmented. This could result in complications and problems in environments such as global markets in which absolute homogenous rules are preferred.

• New opportunities: On the other hand, the UK enjoys the flexibility of designing efficient financial laws. The government has displayed more interest in the front runners such as fintech and green finance, which present the UK with an opportunity and potential to chart its own course in these industries.

Looking Ahead: The Long-Term Impact

Despite the instantaneous short-term consequences, Brexit impacts EU finance in the long term. Here are some trends to keep an eye on:

• Strengthening EU institutions: The Europeans’ unions are trying to secure the market of own’s financial infrastructure, which, in turn, does not require cooperating with London. Projects such as the Capital Markets Union (CMU) should make capital markets more integrated across the EU, and increase cross-border investment.

• Changing investment flows: London may therefore lose its position as the favored gateway to Europe as investors aim towards new financial cities in the EU. The more companies anchor themselves into places such as Frankfurt with deep-seated offices or Paris then the investment climates might slowly shift towards such rising giants.

• Potential for further political changes: Brexit has already upset the political order in Europe. Any other large exits might not be imminent but the ongoing political changes must impact both financial markets as well as regulations moving forward.

• Tech-driven finance: Fintech development is one of the ways that has been embraced by many countries, especially the United Kingdom with London in particular, and this trend will continue in the future. But still, the old cities such as Berlin and Amsterdam have also emerged important in technology-centered finance thus giving birth to fintech in Europe.

By now, there cannot be any doubt that Brexit—the decision of the United Kingdom to withdraw from Europe—has recalibrated the European financial architecture fundamentally. London has remained one of the leading global cities but its dominance in Europe has been diminished, while other cities, such as Frankfurt, Paris and Dublin are building their own positions on the financial map. On the other hand, the power to chart its own financial policies allows the UK to seize opportunities for novel developments, especially where it is running ahead in other advanced economies such as fintech and green finance.

This is as much a story of progressive integration, as it is one of Britain and Brexit tearing through the financial underpinnings of the EU to leave a wake of uncertainty and dramatic change behind. Still both the UK and the EU are in the process of digesting this phenomenon of this new shift and how it adapts itself will determine the future course of the European finance. What remains to be seen is very much up for debate, but this is an opportunity filled future for those willing to gear up and roll with it.