One year since Brexit: London’s financial crown shaken by EU competition but still intact

A year after the new Brexit rules came into force following the UK’s departure from the EU, the powerful city of London remains Europe’s top financial sector despite losing key companies and bankers to rival hubs.

The City’s financial services were hit by a particularly harsh Brexit: they were practically left out of the trade deal that the UK and the EU agreed to in December 2020, and they have seen no deal on equivalence – the status that Brussels grants to third parties. countries allowing them to operate fully in Europe.

When the new rules went into effect in January 2021, British carriers took an immediate hit. With London prevented from offering EU-listed shares to clients outside the UK, trading plunged 40% in the first month and the City was overtaken by Amsterdam on the European chart.

But globally, London remains dominant in several markets, including currency and derivatives. Overall, it remains the world’s second-largest financial center behind New York, well ahead of its European rivals, according to the 2021 Global Financial Centers Index.

“London has spent hundreds of years as a global financial center. Brexit won’t change that, certainly not any time soon,” said Lee Wild, Interactive Investor’s head of equity strategy.

“Leaving the EU brings challenges and there are threats from Paris, Brussels, Frankfurt and Amsterdam,” Wild told AFP. “But the likelihood of European rivals snatching the crown of Europe’s leading financial center from the UK is slim.”

“London still has a lot going for it,” Russ Mold, chief investment officer at AJ Bell, told AFP. The City “offers an ecosystem of banks, advisers, lawyers, fund managers and hedge funds” to attract companies, he added.

However, around 44% of UK-based financial services companies have relocated or are planning to relocate operations or staff to the EU, according to financial group EY. Asset transfers totaled £ 1.3bn (€ 1.55bn) at the end of last year, it added.

Dublin and Luxembourg host the largest number of office moves, while Paris has taken the majority of UK staff. In June, the French president Emmanuel Macron inaugurated the new JP Morgan shopping center In Paris, several hundred of the company’s traders moved from London last year.

Yet London has only about 7,400 finance roles so far, EY says, a drop in the bucket given that the UK financial sector employs more than a million people, 400,000 of whom are based in the capital.

COVID travel restrictions have led dozens of financial institutions to delay moving staff and services from Britain to the mainland, said an EY director. quoted saying. But “the financial sector is still getting over the Brexit hangover,” and movements are expected to accelerate in 2022.

British banks have also terminated some business ties with clients based in Europe.

The sheer number of companies that debuted on the stock market in 2021 – there were 122 initial public offerings, the highest number since 2007 – is another example of London’s appeal.

“London remains an attractive destination for both business investment and finance professionals,” Morgan McKinley CEO Hakan Enver told AFP. “To date, we have not yet seen an exodus due to Brexit, and now that is unlikely to happen.”

“The real risk (for London) is not a ‘big bang’ but slow deflation as activity shifts to other hubs, most likely in the United States or Asia,” said Jack Neill-Hall of the London lobbying group. TheCityUK financial sector.

The change of financial business from the UK to the EU has been compared to a “slow prickthat could take years or decades to develop. Analysts say the process has been slowed by the slow pace of financial reform in the bloc, although plans are underway to speed things up in some areas.

Financial ties between the EU and London continue to be influenced by political factors, and strained relations over issues such as the dispute over post-Brexit deals in Northern Ireland have held back new deals.

Brexit has created a huge financial fault line between the UK and the continent. But as London and the EU seek to assert their own independence, both sides seem hesitant to sever ties too quickly.