Just over a week later, the city of London is tightening its post-Brexit future: a financial services agreement with the European Union may be too small or too late to protect its dominant position.
Negotiations will soon begin to determine the patterns of regulatory cooperation between the UK and the EU, after the industry was largely left out of the trade deal that marked Britain’s separation from the EU on 31 of December. A deadline has been set for March and so far details – including who will lead the discussions – are scarce.
The first days of Brexit have revealed: London lost 6.3 billion euros ($ 7.7 billion) in daily stock transactions at EU headquarters on 4 January, the first working day after the transition period . The overnight loss added momentum to calls from financial corporations and the London Stock Exchange to policymakers to facilitate rules and help the city gain a competitive advantage over European rivals.
One such move came up over the weekend, and the UK Treasury said it plans it allow the trading of Swiss shares, reversing the EU’s ban on doing business. London’s ability to offer trade in companies such as Nestle SA i Roche Holding AG will help offset some of the loss of EU shares. But the stance also deepens the UK’s split with the EU, making the bloc less likely to offer market access.
These talks, centered around a principle called “equivalence”, are open-ended, with no deadline for the trade agreement. Little progress has been made in most areas.
European officials have little incentive to reach an agreement while financial centers in Paris to Amsterdam gain business at the expense of London. Bank of England Governor Andrew Bailey sounded a bewildering note last week, saying access to the bloc should not depend on the rules dictated by Brussels.
While dramatic, the loss of EU shares is unlikely to have a noticeable impact on the tax generated by the company in the UK, which was more than £ 3bn last year. But it was an immediate warning of the possible costs of Brexit. Altogether, the Square Mile accounted for about $ 75 billion in taxes in 2019, including employment taxes, according to the City of London Corporation.
“EU stock trading is gone, it will not return,” said David Howson, president of Cboe Europe, the largest EU stock site in London. The firm has seen about 95 percent of that business move, Howson told Bloomberg Television on Thursday.
How is “equivalence” the key to post-Brexit banking: QuickTake
Bankers and asset managers said the week, however, would not be interrupted. This was due to years of preparation by companies, some of which involved the relocation of businesses, albeit less than initially feared, from the UK.
Companies like JPMorgan Chase & Co. and Goldman Sachs Group Inc. they have already changed tens of jobs and hundreds of billions of dollars in assets, while asset managers such as Janus Henderson Group Plc and Standard Life Aberdeen Plc use funds in Luxembourg and Ireland for clients within the block.
However, this leaves companies indefinitely faced with the complexity and added cost of supporting operations in both London and the EU. Others like Hargreaves Lansdown Plc have decided to stop marketing to European customers.
The smooth return of cross-border business with the blog depends equivalence resolutions of policy makers, which allow companies to do business in the territory of others. A global agreement would help preserve London as the center of EU funding, but this may not be the bloc’s priority. It has long wanted to have more financial infrastructure to serve the economies of the EU and the euro area based in member countries.
“I’m very realistic about that,” Bailey told the BOE to lawmakers last week. “If the price of this is too high, I’m afraid we can’t go there.”
Brexit exodus
On January 6, more than US $ 9.4 billion moved from London
Source: Cboe Global Markets
The unacceptable cost: London is losing its ability to freely set its own rules, which is seen as a vital tool for attracting new business. This potential freedom has already provoked a number of initiatives.
The UK Treasury is reviewing stock market rules, with the LSE among them advocating easier ways for companies to sell shares to capital. Jonathan Hill, once EU financial services commissioner, is studying changes to allow Britain to better compete with US, Hong Kong and European cities looking for more stock sales.
The Financial Conduct Authority is easing barriers to encouraging investors to trade large orders and reviewing rules for derivatives trading. Chancellor Rishi Sunak has proposed reforms to take more of the nascent green finance industry. The reversal of the ban on Swiss stock trading is expected sometime in the first quarter.
“I don’t think this is anything more than an understatement of London’s importance in global capital markets,” said Philip Hampton, former chairman of NatWest Group Plc. “Some of these advantages in London – history, law, language – are not easily compatible with other centers. London still has a lot to fight for and a lot to fight for. ”
However, these new opportunities may not replace the lost business of the EU. London-based Swiss stock trading reached an average of € 1.3 billion a day before the ban, about a fifth of the EU’s stock trading. And, without any agreement between the UK and the EU, there would be more changes to London’s financial center in the coming years.
“Our whole negotiating strategy was quite derogatory to the city and we will come to regret it,” Paul Myners, a former city minister and member of the House of Lords, said in an interview. “I think the change over the next ten years could be very profound.”
– With the assistance of Suzy Waite, Benjamin Robertson and Andrew Atkinson
(Updates with details of Swiss stock trading from the fourth paragraph.)