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Post-Brexit financial Europe is just beginning to emerge

As the Paris Europlace Forum opens this morning, there is less than nine months left before the United Kingdom officially leaves the European Union. However, it is still difficult to distinguish what will be the landscape of European finance after March 29, 2019. The day after the referendum, it was a big bang that had been announced. We were talking about tens of thousands of jobs that were leaving London, and the big squares were embarking on seduction operations to become the new capital of European finance.

No free trade

Two years later, many questions remain unanswered. The only near certainty is that the City should lose the European passport. Theresa May wanted to see integrated finance in the future free trade agreement between the United Kingdom and the European Union. Brussels objected to it.

Paris is on the same wavelength: "We do not think that financial services can be part of a free trade agreement, simply because it is not are not goods, "said Finance Minister Bruno Le Maire last March. Without this precious sesame, London financiers will no longer be able to market their products and services throughout Europe from their British settlements.

The Commission is showing the same firmness on all financial matters. It is hardening its regime, for example on the delegation of management. This system allows management companies registered in continental Europe to entrust the management of their outstanding loans to British managers. Europeans want to avoid the creation of a simple mailbox while the real activity would remain in London

A project to repatriate clearing transactions in single currency transactions in the euro zone is also being finalized. Brussels and the regulators believe that this is an extremely sensitive activity for financial stability. They therefore wish to have full and complete supervision. A blow for the City since the LCH clearing house deals with 99% of interest rate swap volumes in euros, for example.

The wait-and-see attitude of the City

Despite these threats, London financiers have chose to wait to see more clearly in the negotiations. "We are witnessing a kind of race to slow the banks, says Stéphane Giordano, president of the French Association of Financial Markets. Nobody wants to be the first to make announcements. And even when there are statements, the teams actually have no information about actual transfers.

The exodus that some predicted did not take place. Not yet, at least. But, at the foot of the wall, they will not necessarily have the choice, especially since the recent resignations in the UK government further reduce the chances of finding an agreement on a "soft Brexit" in time.

Last month, Christine Lagarde invited the European authorities to be ready. "It is crucial to ensure that everything is ready in terms of regulation and supervision for the massive influx of financial companies that will eventually move from where they are now to continental Europe, and Ireland, "said the director of the International Monetary Fund. For its part, the Bank of England estimates that 10,000 jobs in financial services could be relocated on the first day of Brexit.

But where will they go? No European financial center really stands out for the moment. The distribution should be between different capitals, depending on the specificities of each. Amsterdam will host alternative bursaries seeking a location in continental Europe, such as Turquoise and CBOE and remains the homeland of choice for high frequency traders. Luxembourg and Dublin have registered asset management companies. The banks that have begun to move have chosen Frankfurt a lot to install their head structure for continental Europe.

Paris more and more attractive

Paris is far from being outdone. "Several banks have established their administrative entity in Frankfurt or Amsterdam, but are expanding their operational activities in France," said Arnaud de Bresson, General Manager of Paris Europlace. Paris is in front of Frankfurt in relocated job ads. "

The movement took a little longer to take. But the election of Emmanuel Macron has reassured, as the strengthening of reforms by the government. Especially on the fiscal side. In addition to bankers, France is increasingly attracting asset managers. The latest, the giant BlackRock would thus intend to install in Paris the management of its alternative funds for Europe.

Another testimony to the attractiveness of the Place de Paris, the choice of the City of Light rather than Frankfurt or Dublin to host the European Banking Authority is a strong signal. "The market associations are strengthening their presence," says Arnaud de Bresson. This is particularly the case of the AFME, one of the main European financial lobbies, or the International Association of Capital Markets (ICMA). For its part, the Isda, which is the authority on derivatives, has chosen French law for its new framework contract.

Paris undoubtedly has the wind in its sails, but efforts are still needed. The speeches of the Prime Minister, Edouard Philippe, and Bruno Le Maire in the framework of the Paris Europlace Forum will be particularly expected.

Guillaume Benoit

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