City of London faces messy future with the EU
LONDON (Reuters) - Britain’s future access to European Union financial markets is looking increasingly patchy, as Brussels tries to limit the activities which can be carried out from London, prompting more business and jobs to cross the channel.
The City of London’s unfettered access to its biggest customer - worth around 26 billion pounds ($34 billion) annually - ends on Dec. 31 when Brexit transition arrangements expire.
While London is expected to remain Europe’s biggest financial centre with trillion-dollar foreign exchange trading and derivatives clearing staying put for now, recent moves by the EU to limit other trading activities to within the bloc have dashed the finance industry’s hopes of a wider agreement.
Central to the argument is whether Brussels deems UK financial rules “equivalent” or aligned with the EU’s. Britain says this should be straightforward given both sides have the same rules at the outset.
But last month Brussels said it wouldn’t allow banks in London to offer wholesale investment services to EU investors, piling pressure on the City to shift more activity to continental hubs.
“Firms need to carry on doing their ‘no deal planning’...it will make cross border business outwards from the UK dependent on country by country analysis and so complicated,” said Jonathan Herbst, a financial services lawyer at Norton Rose Fulbright.
ING and BNP Paribas have since announced they will move more trading jobs out of London.
“Selling financial services from the UK to EU clients will not be allowed,” BNP Paribas said last week as it announced it would create 400 new jobs in the EU.
Around 330 financial firms had already relocated some business from Britain to the EU, affecting 5,000 staff by October last year, ahead of a short COVID-19 induced pause, said think tank New Financial.
The Bank of England weighed in on Thursday, warning Brussels’ move risked disruption to cross-border banking and derivatives trading come January, even if equivalence in other areas was agreed.
“The best that can be expected is a few equivalence agreements by the end of the year,” said Karel Lannoo, CEO of think tank CEPS in Brussels.