A global pandemic, the rise of zombie companies, civil unrest, Brexit & ESG. Definitely not boring!

Perspectives / 2021...What Happens Next?

2020, was, without doubt, a very eventful year.

With the advent of the New Year, many are hoping for a return to some degree of normality. Let’s see how that goes. 

In this article, we explore some of the events that we see happening during 2021 and comment on potential impacts for Financial Services and services in general across Europe.

One thing seems to be already guaranteed. Despite from many of us having to remain in our homes for at least part of the year, it is going to be far from boring!

Happy New Year

Many of the 2020 challenges remain and as a result we expect an uncertain year for those operating in consultancy and financial services


First up, COVID. The global pandemic continues to lead the way and sits at the top of people’s lists of concerns. Whilst there has been some good news with regards to a vaccine roll-out, is clear that the logistics and resources required to ensure a speedy and effective immunisation programme are going to be substantial. The focus will be on the elderly, sick, disabled and key workers. For the remainder of us we expect the initial vaccination programs to run for at least the next 18 months, most likely at least two years. This ignores any ongoing requirement to continually vaccinate those most at threat post initial vaccine roll-out.

Covid is here to stay and will have a lasting effect, not just on the European economy but on the global economy

A change in the way of working

The initial shock of having to move staff online and asking people to work from home has subsided and a new norm is emerging…fast.  Many companies are now adjusting their long-term strategies and policies to adapt.

  • In the Netherlands, ING has recently announced that staff will be asked to work at least 50% of their time from home going forward, even after the risk of Covid has subsided.
  • This week a number of large law firms in the City of London have announced that they have put their new office plans on hold, with the reason given that both the Covid pandemic and changes to the UK market as a result of Brexit have led them to reconsider the cost and value of leasing large and costly office space.

We see investment in digital change continuing to accelerate with increased automation led by the switch by service companies to offer services, in country and cross border, fully on-line to their clients.

More debt and more fraud. The rise of the Zombies

With both the UK and mainland Europe now again in an extensive and prolonged lock-down period, governments will be looking to provide further support and loans for employees and businesses. With more than £52 billion having been granted in the first quarter of 2020 in the UK alone, and with the current lock-down having a similar shape to the first, it would perhaps not be wrong to assume that lending this time round will be similar or in excess to what happened in 2020. It is already becoming clear that fraudsters have taken advantage of a number of government funding programs, with estimates ranging between 5% to 20% of fraud related activity in what has been lent. These are big numbers.

There are also major concerns about the ability to repay with estimates in the UK that at least 50% of the debt will never be repaid. The creation of more and more ”Zombie” companies looks like a real possibility, firms that can just service debt but are doomed to fail at some point in the future. With concerns already raised about the impact on banks and the financial system in general, the ECB has been discussing the need to urgently establish a bad bank infrastructure across the EU. The aim will be to relieve the banks from the administrative burden of managing the huge tidal wave bad debt that is expected to hit the economy over the next few years. Rising debt and an increase in fraud are not going away.

Zombie Hand

One of the major resulting factors of the initial wave of Covid in 2020 was that it exposed specific areas of the economy that were already struggling or prone to a high degree of hidden fraud

Restructuring and cutting costs

None more so than those companies involved in global trade and the related financing, which saw some major write-offs and losses in the oil and commodity industries, noteably in Singapore. As a result of these increased losses and an ongoing challenge to understand and manage the financing of trade, many of the banks that have historically provided trade finance activities have now exited or are in the process of exiting these lines of business. This includes ABN Amro , ING and Soc Gen, to name a few.

We also expect to see a further retrenchment by Europe’s more regional banks back to their home territory, exiting not only trade finance business but also whole regions such as Asia and South America. The end result will be that global trade will become further concentrated in a defined number of large banks, such as HSBC and Standard Chartered and other less regulated firms such as Trafigura and Glencore. This concentration will most likely also result in rising food prices as companies hunt for liquidity and as providers price in more risk. The next crisis may well be in food prices, as detailed in a recent Financial Times article. Outside of the EU, we do see the change in government as a positive for US and China relationships, something that has been impacted by the previous administration. The recent EU/China trade deal may though impact the existing US/EU relationship.


A close second on the list is Brexit. The UK left the European Union at the end of 2020 clutching a trade agreement on goods which contained little on services. We expect that to change over the next 6 to 9 months with the focus now turning to services.

Financial services

The past four years have already seen many financial organisations set up fully-fledged subsidiaries, duplicate infrastructures and add staff in the European Union so as to be able to continue to serve EU based clients. The shift has not been limited to banks and insurers but also to the market infrastructure providers and clearing houses. With in excess of 1tn Euro of business estimated to have already left UK balance sheets, the main beneficiaries have been Frankfurt, Amsterdam Paris and Dublin with the city of London estimating that 7.500 jobs have gone to the continent, and many warning that this is just the beginning.

Whilst there are many different points of view as to what the end state of the how many jobs will actually move away from the UK, the most honest statement right now is that nobody really knows and the next 12 months will result in a much clearer picture. We see a number of key activities that will be fundamental in determining the long-term outcome of London as a major centre for financial services, that include…

The discussions regarding equivalence

With the UK leaving the European Union the financial sector in London lost the right to Passport services across the EU. A potential, albeit partial mitigant to the loss of Passporting has been the hope that the EU would grant equivalence for a number of financial products and services. Far less broad than the Passporting arrangements the hope was that at least some products and services could continue to be offered from the UK to the European market. The EU commenced their equivalence review in 2019 but warned late in 2020 that the outcome and any decision would not be ready in time for Brexit, and as such on the first day of trading in January, 90% of EU -related equity business left the City and was traded on European venues. This equated to approximate loss of in value of around 6bn Euro in trade, with little expectation of the volume returning to London exchanges in the short term.

The longer the decision on equivalence takes the less it will be required as clients and financial institutions adapt their systems to trade from Europe and within the EU market. In short, we do not expect the European Union to be rushing to the table to discuss equivalence, contrary to the recent buoyant statement from the British Chancellor. More likely, as has already been the case number of examples, the EU will grant equivalence only where it deems there are major impacts on European clients, such as the recent decision to extend access to UK clearing houses for EU clients for a defined period.

For those financial institutions that have delayed moving to the European Union or are in the process of establishing a licensed subsidiary, some will be relying on piecemeal bilateral temporary agreements with local regulators to continue servicing clients in a specific country. However, these agreements are tenuous at best and we have already seen an example in the first week of January that such agreements can be severely impacted with EU wide decisions that restrict access to the broader infrastructure, therefore restricting the degree and level of service that can be offered, regardless of whether an organisation has the permissions to do so.

We expect UK based institutions to continue to move business to the EU during 2021 and we also expect the EU to further turn the screws on London as a financial centre as Europe begins to prove itself as being able to ensure continuity in financial markets.



Another challenge for the UK relates to data and the ongoing exercise by the EU to confirm mutual recognition of data standards and protection can be applied for EU clients in the UK.

Again, the decision here is expected in H1 2021, with the potential if agreement cannot be reached on having a major impact in how the UK manages deals with personal data of EU citizens (and vice versa). If the EU decides not to apply mutual recognition or if the UK continues to suggest that it may deviate from roles in the future then we expect to see further disruption of the financial services and services sector in general as companies grapple with having to undertake large-scale data migrations and implement various data privacy shields and laws further restricting the ability to effectively deliver cross-border trade.

A focus on mode one services and the end of the day tripper?

One of the implications of the recent trade agreement was the fact that there are now numerous restrictions for UK citizens to operate ’’as was’’ across the EU. These include a strict list of activities (page 753 contains a nice summary) that are possible to be provided on the ground and in-country. Physical, in-person delivery of services is not one of these, so business trips, longer than a few days are expected to decline significantly.

Remote delivery is where it’s at…for now

As such we expect many UK service providers to continue to ‘’lean in’’ to the delivery model that has been enforced as a result of COVID, with providers operating almost entirely remotely to deliver cross-border services over the Internet. These types of services are classified as mode one services under the WTO GTAS structure, and the trade agreement was mute on these types of services offering into the EU marketplace. However, when it becomes clear that these UK-based companies are continuing to offer services using UK employees with the related tax and employment insurances benefiting the UK government, without a contribution back to the EU community contribution, we would not be surprised if the EU looks to further prohibit such activities with the use of tariffs, so as to divert the flow of business to European-based service providers and thus benefit from higher levels of employment and related tax income. This approach will not close the market completely to UK suppliers but will mean a further push towards using either European resource or to short-term UK permitted resource (supported by visas) via EU based subsidiaries. We expect many UK-based companies to continue to establish subsidiaries within the EU so as to be able to continue offering services to clients. The challenge they will face will be staffing them with local resources rather than leveraging a branch structure of UK business, which is no longer allowed, whilst operating the previous fly in/fly out model, that was possible with freedom of movement.


Third on our shortlist, is ESG. There is no doubt that the importance of the environment is now being recognised and with the new American administration coming to power we expect the financial services sector to play an increasing role for governments in providing oversight and reporting on the behaviours of corporations. We expect lending and the ability to continue to do business to be heavily linked to an ESG set of criteria which will be supported by a new range of detailed reporting standards and requirements.

As requirements become clear we expect financial institutions to change their lending policies and procedures and we expect industry and corporations to rapidly exit those businesses that are no longer deemed ESG friendly. As such we expect a number of early movers will be looking to sell large parts of their business and re-structure for the future, with laggards not responding quickly enough, and high risk-takers purchasing assets at knockdown values with the hope of making a quick profit in the interim. We also expect to see a growth in so-called green- washing as companies fail to respond and react quickly enough.

Finally, we do expect banks and financial institutions to jump on the bandwagon and to respond to customer demands to create a whole range of ESG friendly accounts and investments, which will result in investment funds being diverted to a new set of products and services. The challenge to confirm how green these investments really are will continue, and we expect that their will be further issues in this area as products and standards evolve.

In Summary

In summary, we expect 2021 to be an eventful year. We do not expect the spectre of Covid to fully subside, although it could begin to be mitigated from the middle of the year. We see Brexit continuing to play on the European economy and specifically we see further impact on the UK economy as the EU turns its focus to services. Innovation in financial markets and services will continue, mainly with a focus on driving down costs, improving efficiencies and in facilitating the provision of new ESG focused products and services.

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David Aston
Post by David Aston
January 1, 2021
David has 30+ years experience in Financial Markets, is one of the Founders of the NextWave Group and is the CEO and Founder of NextWave-Infinium, our Dutch based business that services our EU based clients. Based in Amsterdam since 2004, he has an in-depth knowledge of The Netherlands and the European Finance sector. He is responsible for the NextWave business in Europe. David has an extensive track record of successfully delivering highly complex, high-profile transformation programs for tier-1 banks. Combining his passion for Finance with a strong entrepreneurial drive, David has also played leading roles in helping to launch, build and scale niche consultancies, growing businesses to in excess of 150 FTE, across multiple locations. An active mentor, supporting numerous tech start-ups, David speaks English, French and Italian.