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LONDON: Europe’s financial capital is feeling the Brexit chill, but UK officials insist London is suffering from a temporary problem and is well positioned to benefit from new business horizons.
For the first time last month, when Britain’s withdrawal from the EU went into full effect, London’s financial district lost its European equity trading crown to Amsterdam.
Researchers at IHS Markit attributed the drop to a “relatively hard Brexit” and the failure of the UK government to persuade Brussels to grant full commercial rights to city companies under a regime known as “equivalency.”
London’s daily trading volumes in other areas, such as derivatives and foreign exchange, still far outnumber its European neighbors, and Catherine McGuinness, chair of policy at the City of London Corporation, downplayed the development.
“We have always known that some companies facing the EU would have to leave the City of London after Brexit, whatever the form of the agreement,” he told AFP.
“However, significantly fewer jobs have been displaced from the city due to Brexit than expected, and we remain confident in the fundamental strengths of the city for the future,” McGuinness said.
London “keeps getting stronger and stronger” in emerging financial technology (fintech) and technology investment, as well as green finance, he added.
In January, according to the Financial Times, an average of € 9.2 billion ($ 11.2 billion) in shares were traded daily on Euronext Amsterdam alongside two other Dutch stock exchanges.
That was more than four times its December figure and surpassed the London daily average of 8.6 billion euros, the newspaper said.
A spokesman for the Dutch Financial Markets Authority told AFP it was not a surprise.
“We think it is a logical consequence because we already had a strong commercial position with Euronext Amsterdam,” he added.
LOST PASSPORT
Financial services, a key driver of the British economy, were largely bypassed from the last-minute Brexit trade deal agreed between London and Brussels in late December.
So as of January 1, the British financial sector lost access to the EU single market and its European “passport”, a means for UK financial products and services to be sold in the EU.
Instead, both sides are working to forge an “equivalency” regime under which each would recognize the other’s financial regulation, and so far Brussels has approved only two exchange areas out of the dozens the city needs.
Anish Puaar, an analyst at Rosenblatt Securities, said London’s relative decline was “symbolic in the post-Brexit era.”
“But beyond that, the impact is pretty minimal,” he said on Twitter.
Puaar said fund managers “probably” won’t mind spreading assets, but the biggest danger is the fragmentation of markets in Europe, which would make business operations more inefficient and drive up costs.
Bank of England Governor Andrew Bailey also addressed fragmentation in a speech last week, urging the EU to rush into equivalency negotiations for the sake of recovery from the pandemic on both sides of the Canal.
Refuting some of the demands made by Brussels in exchange for the city regaining access to EU states, Bailey said Britain did not intend to create “a low-regulation, high-risk, and anything goes financial center and system. “.
But the EU wants firm legal guarantees that Britain will not diverge in its financial regulation at the expense of European businesses, stressing that the hard-line Brexit model now in place was a choice made by London.
DIVERGENCE, NOT EQUIVALENCE
“It can’t be business as usual,” the EU’s chief Brexit negotiator Michel Barnier said on Thursday a day after Bailey’s speech.
“When you look at the consequences in financial services, you can clearly see that there is no added value to Brexit and many, many consequences, unfortunately,” he said.
However, the UK central banker played down fears of an exodus of jobs from London.
Last month, Bailey said up to 7,000 jobs had so far been relocated to rival hubs on the continent, including Amsterdam, Paris and Frankfurt, well short of apocalyptic predictions of up to 50,000 losses.
Mark Simpson, a financial services expert at the law firm Baker & McKenzie, agreed that based on the job loss metric, London didn’t need to panic just yet.
“But the ongoing equivalence debate illustrates a point that many have been making for some time: that the EU is determined to reduce its dependence on London, even if it means taking business further,” to New York, for example, he told AFP.
“It seems increasingly clear that the UK will have to accept that its market position for many areas of European business will be weaker in the future,” Simpson said.
Instead, the city should focus on boosting its appeal to non-European companies, alongside fintech and green finance.
“So what’s happening with equivalency will likely give the UK more incentive to diverge from EU rules in the future.
