London’s financial lobby group warned that the city’s status as the world’s pre-eminent financial hub could be undermined if the UK loses the right to sell its services freely within the European Union as doubts mount over Britain’s ability to retain full access to the trading bloc.
Being able to tap the EU’s single market “under broadly similar conditions” is “of utmost importance”, TheCityUK said in a report Wednesday. Europe’s biggest companies, who rely on banks in London to raise capital and provide financial advice, will also suffer if Britain is shut out after the UK leaves the 28-nation bloc, according to the report.
UK prime minister Theresa May, who has indicated she’d like to preserve so-called passporting, said last week that she’s not wedded to any particular model for the nature of the trading relationship with the EU. May has vowed to restrict the free movement of EU citizens to the UK as voters demanded, and no nation has both passporting rights and curbs on immigration.
“What’s top of the list for financial services is access to the EU single market,” TheCityUK chief operating officer Marcus Scott said in an interview. “We want to make sure that in the upcoming negotiations those services are treated as a priority.”
Competitive cities
Under EU law, a bank incorporated in any member state can sell products and services in all the others, accessing a $19 trillion integrated economy with more than 500 million citizens. Deutsche Bank expects the UK to lose passporting rights, Business Insider reported last month, citing an internal document, and several lenders said in recent weeks that they're prepared to deal with that scenario. That may mean relocating thousands of employees to the continent.
“Despite the UK’s clear competitive advantages, we cannot afford to be complacent or we will lose out to other financial centers that are vying to win the race to attract more business,” TheCityUK and Barclays Plc chairman John McFarlane wrote in the report. “Decisive action is required to sustain the industry’s competitive advantages.”
Barclays is prepared to shift some of its London operations and jobs to other EU cities such as Dublin if needed, chief executive officer Jes Staley said last week. HSBC Holdings Plc and JPMorgan Chase & Co have said they may have to move employees abroad.
Tax hit
That risks depriving the British economy of millions of pounds in tax revenue. Financial services firms paid £66 billion pounds (€78.68 billion) in UK taxes in 2014, more than any other sector, TheCityUK said in the report.
Brexit threatens to add to challenges London already faced from slumps in the activities that dominate its financial center. The UK’s strongest position comes in fixed income, currency and commodities, or FICC, businesses, which have faced a multiyear decline amid new regulations. The US meanwhile, has greater share in faster-growing areas such as fintech and private equity.
The report said that UK politicians need to grasp the opportunities offered by Brexit, promoting even closer economic and regulatory integration with key strategic partners such as the US, which accounts for 49 per cent of the foreign direct investment into financial services in Britain. The City should also “dramatically accelerate” its links with emerging markets such as China and India, which import €23.22 billion and €10.27 billion respectively in financial services annually.
“We’ve got to focus on delivering agreements which continue to give us access to those global markets both mature and emerging as well as the EU,” Scott said.
Bloomberg
