Business remodelled

COVID-19 has changed perceptions about physical location – and, therefore, the whole operating model for Financial Services (FS) – in two fundamental ways. First, the transition to wholesale working from home (WFH) has largely been an operational success. Second, our survey reveals that employees feel that they are, on balance, more productive WFH, and have found it to be a resoundingly positive experience. As a result, as we discussed in our Silver Lining blog, those already WFH expect to do so more. And more people who do not WFH expect to do so in future.

How should FS respond?

FS firms have the opportunity to revisit large swathes of their operating model. The WFH experience, combined with technological developments in data storage (cloud) and analytics, ranging from robotic process automation through to the emerging field of Artificial Intelligence, opens up new options.

Rather than jump straight to the question of floor space, FS leaders should ask a series of questions:

  • Can specific processes be automated?
  • Which tasks are best done in the office? Regulated activities? Collaboration? Innovation? Client meetings?
  • What are employees’ expectations and desires around WFH?
  • How could expanded WFH affect the size and composition of the talent pool?
  • What are the legal, tax and regulatory implications of re-shoring of some functions and increased remote, perhaps overseas, working in others?
  • If tasks must be done in an office, should that be onshore or offshore?
  • If tasks are performed in the UK, should that be in Central London or the regions, perhaps, in local hubs, such as bank branches?
  • Short term, what do public health measures imply for office layout and configuration?
  • And what does this mean for FS’ physical footprint in the medium to longer term?

Automate now? 

At the core of FS’ ability to respond successfully to COVID-19 has been the ability to deploy digital solutions to enable remote working. As a general principle, the more advanced an organisation is with their adoption of digital technologies, the quicker they were able to respond to COVID-19. When volumes quickly spiked at organisations that are still dependent upon highly-manual processes, supported by fragmented and inflexible architecture, they found targeted remediation was required.

By contrast, organisations with advanced digital infrastructure were able to draw upon mature cloud capabilities to adapt and scale to huge spikes in demand for service (e.g. loan processing in banking) and maintain relatively seamless operations. This adaptability and scalability meant these organisations were less affected by the key-person dependencies experienced by their peers. In future, FS should accelerate digitalisation; thus eliminating these dependencies and delivering a more sustainable and durable operating model. These operational benefits should also assist firms in reacting to the likely cost challenges in a post-COVID-19 world.

Once firms have established which processes should be automated, only then should they examine which of the remainder should be performed manually in the office or elsewhere. We examine this question in a forthcoming blog, Task at hand.

Deep pool

Asked about future WFH intentions, 77 per cent of employees surveyed said that they expect to WFH at least a day a week from home post-lockdown, compared with just 41 per cent before. If these WFH expectations are realised, it could have profound implications for the talent pool available to FS, both in size and composition.

Figure 1. Frequency of working from home, pre-lockdown vs. expected post-lockdown 

There has been a trend to longer commutes in the UK, as documented by the UK’s Office for National Statistics (ONS). But, as our survey reveals, and as discussed in our Silver lining blog, by far the most frequently cited reason for the improvements in productivity and positivity for FS workers in lockdown was the absence of the daily commute.  

An increase in WFH would increase the talent pool available to FS. The population of Inner London was 3.6m in 2018, according to the ONS. But that talent pool increases the bigger the geographic area FS can draw from: by almost 50 per cent in Outer London; by almost 1.5 times in Greater London, and by 14.5 times across the whole of England.

The ONS has noted that women’s commutes are shorter than men’s. The Institute for Fiscal Studies (IFS) has shown that this gap opens up after the birth of a woman’s first child, and continues to widen for the following decade. This suggests that mothers find long commutes difficult to combine with parental responsibilities. But choosing shorter commutes has the unwelcome side effect that mothers end up effectively limiting their job opportunities. The IFS posits that mothers’ shorter commutes may be linked to the gender pay gap, as women “may be less likely to find a job well-matched to their skills or with a high-paying employer”.  

Extending WFH may be a way to improve gender balance, to which the industry has publicly committed via HM Treasury’s Women in Finance Charter.

WFH: unexpected consequences

Being able to offer the ability to work remotely is a huge benefit for FS employers. There are, nonetheless, risks with such an approach. Employees may want to work from alternative locations, or to relocate abroad. But there are tax, immigration, regulatory and other legal and financial consequences to that, for both employee and employer.

Should an employee spend a lot of time overseas, they may be deemed resident there. The laws on residence and domicile are devilishly complex, and the laws of the other jurisdiction must be taken into account as well.

Many countries’ immigration laws and regulations don’t yet explicitly address remote working. Some allow for remote work activities on a tourist visa, some require a work authorisation for any type of work (remote or local), and others haven’t taken a stance on the issue. Not having the right immigration permission can have serious consequences for both employee and employer. What’s more, even temporary work trips abroad can trigger personal tax liabilities for employees, and payroll obligations for the employer.

This is not to mention the regulatory aspects, including whether some income must be deferred, whether individuals have the appropriate permissions to perform their roles in other jurisdictions, or if their absence from the UK will raise challenges from UK regulators. The latter may also adversely affect an employee’s existing UK immigration permission, their future eligibility for acquiring ‘Indefinite Leave to Remain’ status in the UK and/or an application for British citizenship.

And there are other implications for the employer too. Depending on the jurisdiction, the number of employees involved, and the time spent overseas, the employer may be deemed to have a “permanent establishment” there, without their own physical or legal presence. Should this happen, there may be registration requirements with local tax authorities, and potential knock-on impacts from an indirect tax perspective; in some jurisdictions automatically triggering a fixed establishment. Moreover, the employer may not even be aware of this until the tax authorities assert this.

For senior executives, remuneration committees should consider the impact of any change in working patterns from a legal, tax and regulatory perspective, as well as potential views of external stakeholders. Shareholders are not supportive of any changes to executive remuneration to compensate executives for any changes in their personal tax status. Remuneration committees now have a wider remit to review workforce remuneration policies and should ensure treatment is consistent and fair across the organisation.

To pre-empt all of this, employers will need to communicate with staff, set clear policies, and implement monitoring and recording systems to ensure that they are compliant from an immigration, tax, social security, regulatory and employment law perspective in all jurisdictions in which employees may want to work.

Nor can employers and employees assume that there is no impact if someone works from home in any other part of the UK. Scotland, for example, has its own income tax regime, with Wales now having the same powers, although its tax rates remain aligned with England. And Northern Ireland has the power (not yet legislated for, as of June 2020) to match the 12.5% corporate tax rate in the Republic of Ireland. Furthermore, Northern Ireland has a unique status under the UK’s Withdrawal Agreement from the European Union, which could complicate services “exported” from Great Britain to Northern Ireland.


We asked FS professionals whether, in the medium-to-long term (from 2021 onwards), they expect their employer to increase the numbers of workers they employ outside the UK (for example in call centres, or for IT support in India). More respondents (17 per cent) expected an increase in the use of workers outside the UK than those who expected it to decrease (eight per cent).

Figure 2. Medium-to long-term expectations over employer’s use of workers based outside the UK

This net positive balance, albeit small, is surprising. Our observation is that FS firms have had mixed experiences during the pandemic with the operational resilience of their offshore service providers. The crisis may help firms to challenge their long-held views about what can or should be done offshore, or even by virtual employees/machines.

Tilt to the regions

Employees expect a tilt from London to the regions. According to TheCityUK, the industry trade body, two thirds of the industry’s staff already work outside London.  Our survey respondents, on balance, expect this proportion to increase. Asked whether they expected their employer to change its physical footprint outside London, just 6 per cent expect it to decrease, while 22 per cent expect it to increase. This could be because lower-density population areas (with less commuting) are seen as less risky to health.

Figure 3. Medium-to long-term expectations over employer’s presence outside London

Jes Staley, CEO of Barclays, said, “The notion of putting 7,000 people in a building may be a thing of the past”. One option could be to use local bank branches, which retail banks have been closing, as small, local work hubs, with all the advantages of a dedicated professional environment, security and IT, but without the hated commute.

FS expectations about office space

In the short term, our real estate experts estimate that enforcing social distancing could reduce the capacity on regular FS floors by 50 per cent, and on trading floors, which are typically tightly packed, by 65 per cent. Factoring in smaller lift loads would reduce effective building capacity to 20 per cent of previous levels.

When asked about changes that their employer might make to the layout of offices, 46 per cent of respondents expect greater social distancing (e.g. distance tapes on the floor, no hot-desking, reconfigured floorplans etc).

Figure 4. Medium-to long-term expectations over amount of physical space between people compared with before lockdown 

48 per cent of respondents expect the space occupied by their employer to decrease over the medium-to-long term (from 2021 onwards). This is consistent with the intention of the vast majority of respondents’ intention to WFH more. Only eight per cent expect their employer’s footprint to increase, possibly because this group anticipates a prolonged need for social distancing.

Figure 5. Medium- to long-term expectations of total space occupied by employers

This blog has examined the implications of the COVID-19 pandemic’s forced experiment in mass WFH for operating models. In subsequent blogs , we examine four other factors that FS need to consider.

This blog is based on a survey of 501 employees working in financial services in London, which was undertaken by YouGov on 5 to 11 May 2020