Brexit and the City: Europe plots a bank heist
London-based companies may need to move chunks of their business — but which cities in the EU will benefit most?
On a rainy June morning in Paris, five dozen men and women gathered in a basement in La Défense, the city’s financial district. Over bitter coffee and fluffy croissants, the great and the good of French politics, business and finance had gathered to plot a heist.
What will Brexit mean for the City of London? Whatever terms Britain manages to negotiate with the other 27 member states, countries across the EU are eager for a bigger bite of the financial services sector that the City enjoys the lion’s share of today, say Financial Editor Patrick Jenkins and FT reporters. The big question is which rivals are likely to benefit most.With two weeks to go before the Brexit vote, they wanted to be ready with a sales pitch to lure the international financial groups based in London, should Britain vote to leave the EU. Now, they reasoned, any company with pan-European aspirations would be compelled to move jobs, business lines, even headquarters out of London.
At the time hardly anyone seemed to believe that the UK electorate would really vote to leave. But that didn’t stop the Parisien elite. Jean-Louis Missika, a deputy mayor of Paris, promised he would be “rolling out the red carpet” to bankers if Brexit happened. Gérard Mestrallet, head of the Paris Europlace lobby group, says this was “the moment” for Paris as a financial centre.
It is a dramatic turning of the tables. Four years ago, Boris Johnson, the then London mayor turned Brexit frontman, who said on Thursday he would not enter the race to be next Conservative prime minister, was goading Paris for the “tyranny and terror” of its rich-soaking tax policies and inviting French bankers to escape to London. “Vous êtes tous bienvenus,” he boomed.
This time it is Paris that is appealing to bankers in London with a “Welcome to Europe” slogan.
The French charm offensive has been notably aggressive, but they are not alone. Frankfurt and Dublin — and a long list of others from Luxembourg to Warsaw — are now clamouring to appeal to the banks, insurance companies and asset managers for whom using the City of London as a single European hub may no longer be sensible. And where those financial services groups go, a whole host of ancillary roles — in law, accountancy, consultancy and the rest — will follow. Tens of thousands of jobs, out of nearly half a million in the City, could be at risk, financiers estimate.
The sales pitch is simple. If the UK is outside the EU, financial services companies will be stripped of the “passporting” rules that allow them to operate across borders without local licences. Those companies will need instead to think about a new EU base. The City, which has grown and globalised since the Big Bang deregulation reforms 30 years ago, would shrink and deglobalise.
Not everyone buys the argument. Some contend the City has an even brighter future as a centre focused less on Europe — excelling, for example, in offshore renminbi trading and financial technology. In any case, bullish British lawyers reckon that UK negotiators will be able to strike a deal to extend passporting. If that proves politically impossible, they point to new rules, under the so-called Mifid II rule book that comes into force in 2018. These should give any non-EU country with “equivalent” financial rules access to the single market on level terms.
One snag is the risk of an EU country — like France — sensing a competitive opportunity and seeking to have the rules tweaked to disadvantage the UK.
Even if a good deal is reached, says Simon Gleeson, a lawyer at Clifford Chance who advises many of the big banks, it may be academic. “Banks [will] have to write their contingency plans before they know the [political] situation that will exist in the future.”
In other words, a bank may need to decide to shift chunks of its business to more secure EU locations, regardless of what politicians manage to negotiate.