Brexit Britain’s financial sector faces ‘slow puncture’
Life in London’s financial district will appear little changed when Britain leaves the European Union on March 29, defying predictions of an exodus of high-flyers to rival centres like Paris, Frankfurt and Dublin. But as chaos reigns in Westminster, the mood in the capital’s historic “Square Mile” and Canary Wharf’s gleaming towers is one of resignation and regret.
Without meaningful access to the EU’S single market, the financial services sector is braced for a long goodbye to its status as the world’s international trade and banking hub, more than a dozen senior industry players said.
“It could be a slow puncture,” said City of London leader Catherine Mcguinness, flagging a steady drain of talent and activity from an industry that has wielded little influence in Brexit negotiations even though it generates about 10 per cent of Britain’s economic output.
“We won’t know what we are going to look like for at least 10 years.” Sources cited years of political strife — from Scotland’s 2014 independence referendum to the bitterly contested Brexit vote and its aftermath — that have hurt Britain’s image as a safe haven for banks, market-makers and investors.
Few are willing to bet that the financial industry, whose 2.3-million-strong workforce stretches across the country, will be bigger or more profitable in a decade’s time.
Parliament has yet to settle on whether Brexit will be hard, soft or even happen at all after Britain Prime Minister Theresa May pulled a vote on her divorce deal with the European Union that she acknowledged she would lose.
But the feeling in the City is that much of the damage has already been done and is largely irreversible.
The finance industry is also grappling with a new political reality in which it has no clear allies in government.
Bankers initially expected ministers to champion their cause above other industries. Instead, the finance sector has been sacrificed to protect manufacturing and secure an end to freedom of movement from the EU.
“It feels like we have been thrown under the bus,” a senior executive at one of Britain’s top banks said.
Britain and its financial regulators argue that the vast financial services “ecosystem” that has evolved in London since the 1980s “Big Bang” will help the City maintain its role as ‘banker to Europe’.
The French, German and Irish governments are pushing hard to replicate this, however, incentivising big financial firms to expand in their countries and wooing bankers who fear for their job security in post-brexit Britain.
Many banks, insurers and asset managers who want to retain access to customers in the EU after March 29 have already redirected hundreds of millions of pounds of investment towards new or expanded hubs in the bloc.
Nearly 40 banks from London have applied to the European Central Bank for licences. According to Frankfurt Main Finance, which promotes the German financial capital, these are set to transfer 750-800 billion euros in assets early in 2019.
The shift in activities has alarmed UK regulators so much that the Financial Conduct Authority (FCA) has written to banks saying they must be able to justify any shift of non-eu business from London to EU hubs.
The Bank of England’s top regulator Sam Woods has said he expects around 4,000, or about 1 per cent, of City jobs to have left by Brexit Day, a fraction of the 30,000-232,000 some consultants had initially forecast.
A survey of 123 firms in September showed as few as 630 Uk-based finance jobs had been shifted or created overseas.
But the ECB has told financial firms they must staff their new EU offices with decision-makers, managers, risk-takers and support teams appropriate to the business they operate from them, meaning a slow brain-drain from Britain looks inevitable.
“Once the European regulators have their hooks in you, they can then start to ratchet things up, limiting how much outsourcing to London and elsewhere outside the EU that you can have,” said David Lawton, a former senior FCA official and now with consultants Alvarez & Marsal.
NEARLY 40 BANKS FROM LONDON HAVE APPLIED TO THE ECB FOR LICENCES. ACCORDING TO FRANKFURT MAIN FINANCE, WHICH PROMOTES THE GERMAN FINANCIAL CAPITAL, THESE ARE SET TO TRANSFER 750-800 BILLION EUROS IN ASSETS EARLY IN 2019.