In just a week, the City of London is coming to a dire realization about its Brexit future: a financial services agreement with the European Union may do little to save the situation.
Negotiations are set to close soon to set the framework for regulatory co-operation between Britain and the European Union, as the industry was largely sidelined in the trade deal, which led the UK from the EU on 31 December Marked the division of. A March deadline has been set. And details so far – including discussions – are rare.
The early days of Brexit had bare the stakes: London lost losses of 6.3 billion euros ($ 7.7 billion) in daily stock trades at EU locations on 4 January, the first trading day since the transition period. The overnight loss added incentives to call in by policymakers and the London Stock Exchange to help ease regulations and give the city a competitive edge over European rivals.
A move emerged over the weekend, with the UK Treasury stating that it was Allow trading in Swiss shares, overturn EU ban on activity. Ability to offer business in companies like London Nestle SA and Roche Holding AG will help compensate for losses in EU shares. But the stance also deepens Britain’s division with the European Union, reducing the possibility of offering market access.
Those negotiations – centered around the principle called “equivalence” – are open-ended, without a time limit governing the trade deal. There has been little progress in most areas.
European authorities have little incentive to pull out of an agreement while the financial centers from Paris to Amsterdam win business at London’s expense. Bank of England Governor Andrew Bailey sounded a derogatory remark last week, stating that the block should not reach Brussels’ set standards.
Dramatically, the loss of EU shares is yet to have any impact on the tax generated by trade in the UK, which was over £ 3 billion last year. But it was an immediate warning of the potential costs of Brexit. In total, Square Mile levied a tax of around £ 75 billion in 2019, including employment taxes, According to the City of London Corporation.
“EU share trading is gone, it will not return,” said David Howson, president of COBE Europe, the largest venue for EU shares in London. The firm has seen about 95% of this business move, Howson said on Bloomberg television on Thursday.
How ‘Equivalence’ is key to post-Brexit banking: Quicktake
Bankers and asset managers said the week was otherwise largely disruption-free. This was due to years of preparation by firms, some of which were involved in ongoing business – though initially feared less – outside the UK
Firms such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. have already transferred scores of jobs and hundreds of billions of dollars of assets, while for asset manager clients including Janus Henderson Group plc and Standard Life Aberdeen plc in Luxembourg and Ireland Using the funds. Inside the block.
Nevertheless, that firms grieved indefinitely with the costs and complexity of subsidiary operations in both London and the European Union. Others, such as Hargreaves Lansdowne PLC, have decided to discontinue marketing to European customers.
Seamless cross-border trade back with block Equivalent rules by policy makers, which allow firms to trade in each other’s territory. A comprehensive agreement would help preserve London as a center for EU finances, but this may not be a priority for the bloc. It has long wanted to take a greater share of the financial infrastructure that serves the European Union and Euro-zone economies in member countries.
Bailey of the BOE told MPs last week, “I’m very realistic about this.” “If this costs too much, I’m afraid we can’t go for it right now.”
Unacceptable costs: London is losing the ability to set its own rules independently, which is seen as an important tool to attract new business. That potential independence has already sparked initiatives.
The UK Treasury is reviewing stock-market listing rules with LSE among them Advocating easy ways for companies to sell shares in the capital. Jonathan Hill, once the EU’s financial services commissioner, is considering changes to allow Britain to better compete with the US, Hong Kong and European cities, which are driving guns for more sales.
The Financial Conduct Authority is creating hurdles to encourage investors to trade large orders and is reviewing the rules for derivatives trading. Chancellor Rishi Sunak has proposed reforms to grab more and more The nascent green finance industry. The reversal of the ban on trading in Swiss shares is expected sometime in the first quarter.
“I don’t think it’s like a death knell for London’s importance in global capital markets,” said Philip Hampton, former president of NatWest Group plc. “Some of these advantages of London – history, law, language – are not easily able to match other centers. London still has a lot to fight for.
Nevertheless, these new opportunities cannot replace lost trade for the European Union. A fifth of the European Union’s shares traded, London-based trade averaged 1.3 billion euros per day before the ban. And with no agreement between Britain and the European Union, London’s financial center could undergo further changes in the coming years.
“Our entire negotiating strategy was very dismissive about the city and we will regret it,” said Paul Myers, a former city minister and House of Lords member, in an interview. “I think the change could be quite profound in the next 10 years.”
– assisted by Suzy White, Benjamin Robertson and Andrew Atkinson
(Updates with details of Swiss share trading starting in the fourth paragraph.)