Resilient City can bounce back yet again

BRitain’S world-beating financial services sector is effectively left to sink or swim under the terms of the new UK-EU trade agreement. in spite of accounting for more than 7 per cent of national output, employing up to three million people and being a huge generator of trade surpluses and taxes, it received scant attention in Brexit trade talks.

nevertheless, it is my belief that the city’s long history of innovative trading – dating back to the founding of the London Stock Exchange, the Lloyd’s insurance market and the Bank of England in the coffee houses of the late 17th century – will hold it in good stead.

as technology such as big data and artificial intelligence has gained a hold in business, the UK has become a global leader in financial technology (or fintech), exporting its expertise in 21st century payments systems to the rest of the world.

companies such as Worldpay and Monzo, which bypass traditional banks, look set to become the wave of the future.

as a result of arrangements put in place by the Bank of England and the Financial conduct authority, the role of London as the world’s biggest centre for trading foreign currencies and complex derivative trading should remain safe.

More than £41trillion of derivatives contracts are traded on the city’s markets, such as the London clearing house, and so far no other financial centre has been willing to take on the risk.

an indication of the city’s resilience as the UK leaves the EU is the rise in trading in the chinese currency, the renminbi.

in 2020 renminbi trading in London reached £328billion, exceeding cross-border trading in the euro.

Meanwhile, fears that there would be a large-scale migration of banks, dealers and trading to the continent as Brexit approached – raised repeatedly over the last four-and-a-half years – have so far not come to fruition. the most recent data collected by accountants EY is that just 2,850 jobs have been moved to Frankfurt, Paris, amsterdam and other centres. in contrast, there has been a net increase of employment in the city and its canary Wharf offshoot of more than 5,000 people.

among the biggest areas of vulnerability to the city in finance post-Brexit, however, is the loss of the so-called ‘banking passports.’ these allowed banks to make loans, provide advice, manage investments and carry out other activities across national boundaries within the European Union.

AS a result, many of the big worldwide banks including goldman Sachs and hSBc, which have global headquarters in London, have been forced to shift teams of bankers to Frankfurt and Paris to ensure passport arrangements remain intact.

For the time being at least, Brussels and Frankfurt (home of the European central Bank) recognise there is little divergence between regulations and rules in the city and EU. the big challenge will be ensuring that the UK keeps its financial regulation aligned with the continent.

any major divergences – should the UK seek to take advantage of its new freedoms – could potentially lead to Brussels putting up barriers against British financial groups. another major adverse trend seen over the last four years has been the decision of banks and fund management groups to move assets out of the city to Luxembourg, Dublin and Frankfurt.

So far, some £1.2trillion is estimated to have left UK stewardship.

however, although money held by US banks such as JP Morgan and Morgan Stanley has fled, the people who actually manage and trade the funds remain in the UK. and several of the big foreign banks, notably goldman Sachs and Morgan Stanley, have bought and moved into big new campuses in the city, demonstrating a continued faith in its survival.

With 90 per cent of eurozone currency trades going through London and 84 per cent of interest rate contracts handled in the UK, it is hard to see that business moving to the continent any time soon.

the city survived the great Fire of London, the economic damage of the 1925 gold standard and iRa bombings in the late 20th century.

it came back fighting fit as a huge offshore financial centre with the help of Mrs thatcher’s ‘Big Bang’ reforms which swept away old-fashioned privilege.

it is my belief that being outside the EU will encourage a new wave of innovation and creativity.