Brexit hurt the financial centre but lack of political will is holding back Europe’s efforts to reduce its dependence on the UK
Sam Fleming in Brussels, Philip Stafford in London and Laura Noonan in Dublin 15 HOURS AGO
For someone who started their career working on the floors of the London Stock Exchange, the hours following the UK’s exit from the single market could hardly have been more wrenching.
In a single day, Alasdair Haynes, chief executive of Aquis Exchange, a UK share-trading venue, watched virtually all share-trading business that he had courted over eight years being unceremoniously yanked out of London and transferred in January 2021 to EU exchanges.
The stunning shift, which affected €6bn of trading in European shares that day, seemed emblematic of the blow by Brexit to the City of London’s status as Europe’s dominant financial capital — a harbinger of lost business for London and fresh opportunities for rival centres such as Frankfurt, Paris and Amsterdam.
A year down the road the story looks less dramatic and clear-cut, says Haynes, whose customers moved to an EU-domiciled subsidiary in Paris. The manner of the UK’s departure was undoubtedly “an own goal” by London, he says. But the EU is struggling to map out a winning strategy of its own to build up its capital markets.
“In Europe, different centres are all fighting each other . . . to get business back at any cost,” says Haynes, who has held senior trading roles at Morgan Grenfell, UBS and HSBC in his 35-year career in the City. The UK fared better than some expected in 2021, while the EU’s plans to date “have not been very impressive.”
As the City marks the anniversary of its divorce from the single market, bankers and officials confirm that broader picture. Rather than experiencing the big-bang shift of swaths of financial sector business from the UK to the EU that some predicted, the City is enduring a slow puncture that will take years or decades to play out.
The EU’s efforts to reduce its reliance on the UK and build up a financial sector commensurate with its economy have remained slow-moving and inconclusive, in part because of a lack of political focus in big capitals.
Brussels is likely, for example, to confirm early this year that it has ditched hopes of rapidly pulling the systemically sensitive job of clearing trillions of derivatives transactions from London into the union, instead embarking on a much more gradual process with an uncertain destination.
“We need to take the long view here: developing deeper capital markets in the EU is neither easy nor quick to do,” acknowledges Valdis Dombrovskis, European Commission executive vice-president, adding that the EU has made good progress rolling out legislation. “We still have barriers to knock down.”
London loses its sheen
The post-Brexit trade deal struck in late 2020 made precious little provision for financial services, and since then Brussels has refused to offer London anything like the same market access arrangements — or equivalence — that financial centres including New York, Tokyo or Hong Kong enjoy.
A memorandum of understanding on regulatory dialogue has sat unsigned gathering dust on the shelf — a casualty of EU anger over the UK’s demands to redraw the Northern Ireland protocol. The notion that the UK will lure in large amounts of financial activity after a wide-ranging regulatory bonfire has proven to be an illusion.
EU financial capitals have meanwhile reported a surge in activity as firms are forced by regulations to shift business from the City of London. Two dozen large financial services firms have announced plans to move £1.3tn of assets from the UK in the aftermath of Brexit, according to research from EY.
Paris has been one beneficiary, as the French capital seeks to lure bankers and financial firms with tax breaks and other incentives. It has attracted 2,800 UK employees since Britain voted to leave the EU in 2016, according to EY.
The bulk of roles are in trading, as France capitalises on the existing expertise of its main banks in many derivatives markets. A number of US banks have also chosen Paris as one of their EU bases, among them JPMorgan, which is due to increase its staff from 250 to 800 people in France this year.
A further 20 to 30 per cent of the new jobs are linked to investment funds — hedge funds such as Citadel have set up shop or expanded their teams in Paris — while the rest are made up of fintech and insurance companies, according to Arnaud de Bresson, the managing director of lobby group Paris Europlace.
“You can see the transfers happening and they are real,” says Stéphane Rambosson, co-founder of Vici Advisory, an executive search firm.
London has, meanwhile, lost its crown as the main hub to trade shares in Europe to
Amsterdam as tough rules from Brussels curbed cross-Channel dealings. Euronext, the EU’s largest stock market operator, is moving the data centres that house all its trading from Basildon in Essex to Bergamo in Italy.
The EU sovereign debt market, including hundreds of bank employees in sales and trading, has slipped out of London. Officials hope that increasing issuance of bonds collectively backed by EU governments — which has ramped up dramatically with the €800bn NextGenerationEU debt issuance programme — could give the EU market a further boost and ultimately provide a eurozone-wide safe asset that aids capital markets integration.
EU fails to dislodge UK’s global dominance of clearing
Europe’s fragmented financial sector
Despite all this, the City of London remains the continent’s most important financial hub across swaths of activity. Brexit-related job moves from the UK to the EU total less than 7,400, according to EY figures tracking announcements up to December — far short of the tens of thousands predicted after the 2016 referendum.
Relative to gross domestic product, EU financial markets — incorporating pensions, asset management, equity markets, bond markets, private equity and venture capital — were just half the size of the UK’s in April 2021, according to New Financial, a think-tank.
UK chief trade negotiator David Frost looks on as Prime Minister Boris Johnson signs the EU-UK Trade and Cooperation Agreement at 10 Downing Street, London, in December 2020
London employs more than 418,000 people in financial services, UK government data shows, and it remains the dominant hub for trading currencies and derivatives, clearing, insurance and private equity funds. London is still the main place to raise equity in Europe and has just enjoyed its strongest year since 2007.
Chris Woolard, the recently departed interim head of the UK’s Financial Conduct Authority, who now heads EY’s regional regulatory practice, argues that the commission is currently “reconciled” to the idea that in the short term the UK has a relative competitive advantage because of the scale and liquidity of its markets.
But that does not mean Brussels is content to let matters stay as they are. The union is embarking on a project to bolster its self-reliance across a range of industries ranging from semiconductors to hydrogen, medicines and high-end batteries. That agenda will take on even greater urgency in the coming months as France holds the rotating EU presidency and seeks to build up the “strategic autonomy” initiative.
Financial services post-Brexit should in theory sit within this plan. The idea, says Dombrovskis, is not to grab market share — contrary to what some UK and industry executives claim — but to address the “systemic risks” of being heavily reliant on financial infrastructure such as clearing houses that are not under the supervision of EU authorities. “I am confident that we will gradually start seeing real changes in the share of capital markets and investments financing of EU companies,” he says.
London will always been more flexible and able to outpace the eu. Thats alongside already having the infrastructure and major players in one city means i cant see it happening anytime soon
2 comments
Brexit hurt the financial centre but lack of political will is holding back Europe’s efforts to reduce its dependence on the UK
Sam Fleming in Brussels, Philip Stafford in London and Laura Noonan in Dublin 15 HOURS AGO
For someone who started their career working on the floors of the London Stock Exchange, the hours following the UK’s exit from the single market could hardly have been more wrenching.
In a single day, Alasdair Haynes, chief executive of Aquis Exchange, a UK share-trading venue, watched virtually all share-trading business that he had courted over eight years being unceremoniously yanked out of London and transferred in January 2021 to EU exchanges.
The stunning shift, which affected €6bn of trading in European shares that day, seemed emblematic of the blow by Brexit to the City of London’s status as Europe’s dominant financial capital — a harbinger of lost business for London and fresh opportunities for rival centres such as Frankfurt, Paris and Amsterdam.
A year down the road the story looks less dramatic and clear-cut, says Haynes, whose customers moved to an EU-domiciled subsidiary in Paris. The manner of the UK’s departure was undoubtedly “an own goal” by London, he says. But the EU is struggling to map out a winning strategy of its own to build up its capital markets.
“In Europe, different centres are all fighting each other . . . to get business back at any cost,” says Haynes, who has held senior trading roles at Morgan Grenfell, UBS and HSBC in his 35-year career in the City. The UK fared better than some expected in 2021, while the EU’s plans to date “have not been very impressive.”
As the City marks the anniversary of its divorce from the single market, bankers and officials confirm that broader picture. Rather than experiencing the big-bang shift of swaths of financial sector business from the UK to the EU that some predicted, the City is enduring a slow puncture that will take years or decades to play out.
The EU’s efforts to reduce its reliance on the UK and build up a financial sector commensurate with its economy have remained slow-moving and inconclusive, in part because of a lack of political focus in big capitals.
Brussels is likely, for example, to confirm early this year that it has ditched hopes of rapidly pulling the systemically sensitive job of clearing trillions of derivatives transactions from London into the union, instead embarking on a much more gradual process with an uncertain destination.
“We need to take the long view here: developing deeper capital markets in the EU is neither easy nor quick to do,” acknowledges Valdis Dombrovskis, European Commission executive vice-president, adding that the EU has made good progress rolling out legislation. “We still have barriers to knock down.”
London loses its sheen
The post-Brexit trade deal struck in late 2020 made precious little provision for financial services, and since then Brussels has refused to offer London anything like the same market access arrangements — or equivalence — that financial centres including New York, Tokyo or Hong Kong enjoy.
A memorandum of understanding on regulatory dialogue has sat unsigned gathering dust on the shelf — a casualty of EU anger over the UK’s demands to redraw the Northern Ireland protocol. The notion that the UK will lure in large amounts of financial activity after a wide-ranging regulatory bonfire has proven to be an illusion.
EU financial capitals have meanwhile reported a surge in activity as firms are forced by regulations to shift business from the City of London. Two dozen large financial services firms have announced plans to move £1.3tn of assets from the UK in the aftermath of Brexit, according to research from EY.
Paris has been one beneficiary, as the French capital seeks to lure bankers and financial firms with tax breaks and other incentives. It has attracted 2,800 UK employees since Britain voted to leave the EU in 2016, according to EY.
The bulk of roles are in trading, as France capitalises on the existing expertise of its main banks in many derivatives markets. A number of US banks have also chosen Paris as one of their EU bases, among them JPMorgan, which is due to increase its staff from 250 to 800 people in France this year.
A further 20 to 30 per cent of the new jobs are linked to investment funds — hedge funds such as Citadel have set up shop or expanded their teams in Paris — while the rest are made up of fintech and insurance companies, according to Arnaud de Bresson, the managing director of lobby group Paris Europlace.
“You can see the transfers happening and they are real,” says Stéphane Rambosson, co-founder of Vici Advisory, an executive search firm.
London has, meanwhile, lost its crown as the main hub to trade shares in Europe to
Amsterdam as tough rules from Brussels curbed cross-Channel dealings. Euronext, the EU’s largest stock market operator, is moving the data centres that house all its trading from Basildon in Essex to Bergamo in Italy.
The EU sovereign debt market, including hundreds of bank employees in sales and trading, has slipped out of London. Officials hope that increasing issuance of bonds collectively backed by EU governments — which has ramped up dramatically with the €800bn NextGenerationEU debt issuance programme — could give the EU market a further boost and ultimately provide a eurozone-wide safe asset that aids capital markets integration.
EU fails to dislodge UK’s global dominance of clearing
Europe’s fragmented financial sector
Despite all this, the City of London remains the continent’s most important financial hub across swaths of activity. Brexit-related job moves from the UK to the EU total less than 7,400, according to EY figures tracking announcements up to December — far short of the tens of thousands predicted after the 2016 referendum.
Relative to gross domestic product, EU financial markets — incorporating pensions, asset management, equity markets, bond markets, private equity and venture capital — were just half the size of the UK’s in April 2021, according to New Financial, a think-tank.
UK chief trade negotiator David Frost looks on as Prime Minister Boris Johnson signs the EU-UK Trade and Cooperation Agreement at 10 Downing Street, London, in December 2020
London employs more than 418,000 people in financial services, UK government data shows, and it remains the dominant hub for trading currencies and derivatives, clearing, insurance and private equity funds. London is still the main place to raise equity in Europe and has just enjoyed its strongest year since 2007.
Chris Woolard, the recently departed interim head of the UK’s Financial Conduct Authority, who now heads EY’s regional regulatory practice, argues that the commission is currently “reconciled” to the idea that in the short term the UK has a relative competitive advantage because of the scale and liquidity of its markets.
But that does not mean Brussels is content to let matters stay as they are. The union is embarking on a project to bolster its self-reliance across a range of industries ranging from semiconductors to hydrogen, medicines and high-end batteries. That agenda will take on even greater urgency in the coming months as France holds the rotating EU presidency and seeks to build up the “strategic autonomy” initiative.
Financial services post-Brexit should in theory sit within this plan. The idea, says Dombrovskis, is not to grab market share — contrary to what some UK and industry executives claim — but to address the “systemic risks” of being heavily reliant on financial infrastructure such as clearing houses that are not under the supervision of EU authorities. “I am confident that we will gradually start seeing real changes in the share of capital markets and investments financing of EU companies,” he says.
London will always been more flexible and able to outpace the eu. Thats alongside already having the infrastructure and major players in one city means i cant see it happening anytime soon