Press Release 07/12/2020 Jill Treanor Sunday times
The financial industry is not a political priority. Choppy waters lie ahead for the Square Mile
In the wealthy Paris suburb of Maisons-Laffitte, Ben Hunter is braced for a flood of new pupils. Hunter, head
of the Ermitage International School, wonders whether they will start to arrive after the UK’s transition
arrangement with the EU ends on December 31.
Before Covid-19 struck, three international banks approached him about securing places. One was sounding
him out about 150 new entrants for September 2021 — but the start-stop nature of Brexit created doubts.
“We’ve been expecting an influx, but we haven’t seen it yet,” said Hunter, 35, whose grandmother founded
the bilingual school for 3 to 18-year-olds in 1941.
The coming weeks could determine whether schools such as Hunter’s, and others in capitals across the
Continent, will be enrolling hundreds of new pupils as the financial services sector implements its Brexit
contingency plan. At the moment, however, bankers are as much in the dark as school heads.
With less than a month to go before the end of the transition period, Boris Johnson has personally intervened
in trade talks that were “paused” on Friday, keeping a cloud of uncertainty over the City of London. A row
over the right to fish in British coastal waters is holding up any trade deal, from which Britain’s financial
services sector — employing 2.3 million — has in any case already been excluded.
On this crunch weekend, the dispute over fishing, which makes up about 0.1% of gross domestic product,
illustrates how the industry has taken precedence over financial services, which accounts for about 7% of
Britain’s economic output. It means the banks, insurance companies and fund management groups
populating the sector are now implementing plans to ensure they can keep operating without easy access to
the 27-member bloc.
“Politics over pragmatism” is how Catherine McGuinness, policy committee chairwoman at the City of London
Corporation (the City’s local authority), has expressed it.
While a trade deal would not help the City directly, senior figures hope it would at least ease the pressure on
their clients, as well as provide a cordial backdrop for gruelling discussions in the months ahead to smooth
the way for dealing arrangements between Britain and the EU.
The reason why schools across the Continent are braced for an influx is that one solution for banks is to send
staff to other European financial centres. So far, the exodus — 200,000 was predicted by one senior City
figure — has not happened.
The latest figure from EY’s tracker is 7,500 since 2016. Yet many fear the City is in for a long waiting game to
see whether its pre-eminence is eroded in ways that will become apparent in the years ahead.
“It’s a shame that the government did not think financial services should be at the centre of an agreement
with the EU,” said veteran financier Daniel Pinto, who now runs his own advisory and fund management firm,
From the moment of the shock referendum result in June 2016, the City has hoped for the best … while
preparing for the worst. The first significant defeat was on “passporting”, the arrangement that allows
companies across the bloc to operate smoothly in other nations — and has ensured that Britain vies with
America to be the world’s leading financial centre. Of the world’s foreign exchange trade, amounting to $6
trillion (£4.4 trillion) a day, 44% goes through Britain. Three-quarters of all trade involving euros happens in
The Square Mile is set for its own version of a hard Brexit as passporting ends on December 31. The City’s
best hope is for “equivalence”, where the EU grants access to its markets after assessing that a country’s
rules are as robust as its own. So far, such access has been granted only for clearing houses, regarded as
crucial in protecting the financial system from a systemic meltdown — and not for other sectors where
financiers say such arrangements could be needed.
To cope, financial firms that had used London as their entry point to the EU have made changes. New
Financial, a think tank, estimates that more than 300 firms have set up new legal entities or moved staff. The
European Central Bank has said that seven big banks have moved €1.2 trillion (£1.1 trillion) to the eurozone
from Britain in preparation for Brexit.
Paris is one beneficiary. According to sources, between 3,000 and 4,000 jobs are on their way to the French
capital, where Bank of America has already set up a new office housing 400 staff.
However, because the job moves are on the scale of pre-referendum estimates, more changes might be on
the way. Vishal Vedi, UK head of banking and capital markets at Deloitte, said: “What we are anticipating
over the course of the next year and thereafter is banks looking at how they will conduct business across
Europe.” Banks will have to decide what their “optimal” structure is for life post-Brexit. Bankers acknowledge
that, instinctively, it feels as if more business would move to the EU — but how much is not yet clear.
London could also lose out on new opportunities. Matthieu Bordeaux Groult left his London job to set up a
new fund management firm in Paris, ROCE Capital, in September. The 39-year-old Frenchman loved
London, but Brexit made him realise that it was not the ideal location for his firm. “You have currency risk and
uncertainty about how you’re going to run European money [in London].”
For bankers, planning for the worst — as mandated by the Bank of England — has proved worthwhile. James
Bardrick, head of UK operations at America’s Citi, said: “We have found ourselves close to assumptions we
made for a worst case.”
Citi already employs about 14,000 people in the rest of the EU and has created about 200 new roles in the
bloc, from Amsterdam to Luxembourg, Dublin, Madrid, Frankfurt, Paris and Milan. About 70 positions moved
Goldman Sachs, which runs its European operations from London, has opened in Frankfurt, Paris, Milan,
Stockholm, Dublin, Copenhagen and Luxembourg, creating 500 jobs in the EU.
The City is watching to see which continental financial centre wins out. Axel Weber, chairman of the Swiss
bank UBS, told a Financial Times conference last week that divisions in the EU would benefit London: “It’s all
about competition — Frankfurt against Paris.”
Without a banking and capital markets union — which is proving difficult — this fragmentation inside the EU
may continue. Research by New Financial has found that Britain accounts for almost a third of financial
activity in the former 28 EU nations. France is second with a 16% share, Germany has 15%.
New Financial pointed out that without equivalence, trading in shares of EU 27 nations that takes place in
London will have to move to the bloc, along with bond trading. It estimates that nearly half of trading in EU 27
stocks takes place in the UK and more than 70% of bond trading.
“As things stand, without equivalence, most of this activity will move in January,” said the economist
Panagiotis Asimakopoulos in a report for the think tank.
If a trade deal on goods can be achieved, there are hopes it could smooth future arrangements for services
— and soon. Oliver Moullin, managing director at the Association for Financial Markets in Europe (AFME),
said: “If there was a political agreement, it should hopefully enable some progress on equivalence for
derivatives trading, and would allow EU firms to continue to trade derivatives on UK venues.”
The debate about the future of the City post-Brexit is now underway. Rishi Sunak, the chancellor, issued a
series of papers last month on the subject. The UK is granting equivalence to the EU to try to provide clarity.
The Treasury said: “By bolstering the dynamism, openness and competitiveness of the sector, we will ensure
the UK moves forward as an attractive and well-regulated market, leading the world in pioneering new
technologies and shifting finance towards a net-zero future.”
Emma Reynolds, a former Labour MP and now the managing director of policy at TheCityUK, the think tank,
said that this should not mean looser rules: “There is not an appetite for a race to the bottom in standards.”
However, this is a time to rethink. Pinto said the City could remain a “bridge” between the American market
and Europe; he sees it as a centre for technology and private equity in Europe. “The perception of the City
being the turf of big banks and the FTSE 100 has to be changed,” he said. He hopes for a thriving centre for
small and mid-cap stocks.
John Liver, head of UK financial services regulation at EY, said financial firms would have to balance their
business against two different approaches: “The chancellor’s message is about being open for international
trade as long as it’s done to sensible standards, whereas the EU is more about building European capacity
and being compliant with European standards.”
Liver questions why more business has not left London already. “It’s because customers of big institutions
want to be in London,” he said. “They are reluctant to move until the alternative is going to be good enough.”
Paris hopes to prove itself. Arnaud de Bresson, head of Paris Europlace, charged with promoting the city,
said it would focus on fintech, sustainable finance and infrastructure finance. London would not be toppled,
he said, but it could be “reduced in size in some fields”.
International schools will be keeping a close eye on that. One, Jeannine Manuel, a bilingual school in Paris,
saw a rise in applications from the UK from the Brexit referendum until last year.
That has dropped back, but now Bernard Manuel, chairman of the board of the school founded by his mother,
is seeing a new round of applications. “There seems to be a second wave taking stock,” he said.
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