For almost 60 years the City of London has absorbed a large proportion of the EU’s capital markets as it competed with New York for the title of the world’s dominant financial centre. Brexit will almost certainly threaten its ranking.
Only half of the City’s business comes from UK clients, with around half of the remainder coming from the EU and the rest arising from the wider financial world, from the US, the Middle East and Asia. The former banker and author Philip Augur has argued that ‘It is hard to read Brexit as a positive for the City of London if you peer 20 years into the future’. There will be restrictions and frictions where there were none before, which will see the City’s reach shrink for the first time since the 1960s.
So far around 10,000 City jobs, 4% of the total, have been transferred to the EU. More substantially, some £1.2 trillion banking assets, 14% of the total, have been moved since the referendum in 2016, mostly to Frankfurt. Where assets end up tends to be where long run activity follows. In early December 2020 the Commonwealth Bank of Australia announced it would move its European HQ from London to Amsterdam.
The City will remain a major financial centre for the foreseeable future and the largest hub in the European timezone. London accounts for a huge share of EU business. In the three years to 2019 it was responsible for 84% of the top three EU countries for derivatives trading, 82% for foreign exchange and 42% of assets under management.
The EU has expressed its determination to assert its ‘economic autonomy’ and restore the financial business lost to the City of London. This will not be easy especially in areas where withdrawing access could damage the EU’s own financial stability. That is why Brussels has agreed to roll over current arrangements for clearing euro-denominated derivatives, a business dominated by London-based clearing houses.
The EU has, however, refused to recognise most of the UK’s regulatory system as ‘equivalent’ to its own. It is eager to assert its sovereignty in financial services and not leave regulation of euro assets to overseas regulators. This is not the work of a moment’ according to Sebastian Raspillar, assistant secretary for the financial sector at the French Treasury. ‘We are talking about loosening very deep ties with the UK’. It will be held back by the unlikelihood of finance coalescing around a single EU hub, and the still underdeveloped state of the EU’s capital markets.
But as Philip Augur has argued the City should not underestimate the determination of the EU to erode the UK’s dominance. ‘The EU will fight tooth and nail to claw back the business lost to London’.*
Fight Racism! Fight Imperialism! 280 February/March 2021
* Information from Financial Times ‘The future of the City’ 10 December 2020.