The City of London wields extraordinary influence as one of the world’s leading financial centers, but its place at the top of the global finance industry is threatened by Brexit.
The district is governed by The City of London Corporation, which is one of the primary voices of the UK’s financial sector. Catherine McGuinness is the chair of the Policy and Resources Committee, essentially serving as the corporation’s political leader. Quartz spoke to McGuinness about the impact of Brexit on the City. She said Brexit doesn’t bring new opportunities, but instead was creating “cliff edge risks,” in which firms have contracts to provide services to customers beyond Brexit but could abruptly end up without the regulatory approval to do so.
Quartz: How are financial firms in the City preparing for Brexit?
McGuinness: The larger regulated firms have been making contingency plans ever since the referendum. In terms of jobs moving, at the moment that’s at the lower end of the range that we predicted, so between 2,000 and 7,000, but that’s just day one. We don’t yet know what the longer term implication will be. The big firms have taken what steps they can but there are still some intractable issues which need regulatory or legislative solutions.
Our particular concern is cross-border data flows. If there’s a no-deal Brexit, people will have to to rely on setting up standard contracts for data flowing from the EU to the UK. We’re very worried about that. We don’t think that’s sufficient. There are a few other cliff edge issues that still need sorting out. Contract continuity for insurance contracts and uncleared derivatives and other issues that are coming to the surface.
A no-deal Brexit is becoming an increasingly serious concern, are there still a lot of outstanding issues?
Some of the big systemic challenges were dealt with at the 11th hour. For example, clearing was dealt with really late, it was frightening how late. Though we do need to remember it’s only a temporary solution. Whether we leave with no deal or whether we leave with a deal and a transition period, we’re still leaving. This is just the end of the beginning. There’s a lot of work yet to be done.
What about smaller businesses?
I’m worried about the SMEs who I suspect haven’t made the same plans as larger firms. They are busy running the day-to-day business or may not have the human and financial resources to put into a contingency planning. They also might not be completely aware of what the challenges for their supply chains will be.
Because we’ve been in this state of limbo and uncertainty, there’s an assumption that something will work out. And as you hear our parliamentarians saying, there’s a majority against no deal. That may give some comfort but actually what does it mean? The only way Parliament can assure no deal doesn’t happen is by withdrawing Article 50 and I can’t see that happening. Otherwise we need EU27 agreement.
What can companies do to prepare their staff?
I can’t remember which institution, but someone said to me about a year ago that he gave his staff a pep talk, trying to be positive, and three of them started crying.
More seriously, we’ve seen that have an impact on recruitment. Anecdotally, people tell me people haven’t wanted to come because they haven’t felt welcome.
Has there been an impact on London’s reputation internationally?
Absolutely. First of all there’s astonishment, which we share, at the state of our politics. We also now have to prove ourselves and the value of this country, and what it has and its future, in a way we didn’t have to before. You do need to justify. In some ways that’s not been a bad thing because we’ve had to analyze our fundamental strengths. We’re very confident in the long-term future and we’re very troubled by the short-term uncertainty.
What does the government need to do to create a better scenario for the City?
We want to see a very close relationship with the EU because it’s a really important trading partner—one which allows mutual access to trade but leaves us the autonomy to make regulations we need to protect our economy. If we’re working on the basis of the current equivalence model 1 then we’ll need to see significant enhancements to make it a more predictable, less political, and more extensive.
What’s wrong with the current model?
So the present system only covers about a third of the activity that’s carried out by financial services firms in the UK. It’s very political. If you look at what’s happened with the Swiss stock exchange, for example: They’ve only got a six-month extension on equivalence 2 at the moment and and it can be revoked very quickly on 30 days notice.
We will need to see considerable work if that’s the basis. Of course, the EU is trying to get some more business at the expense of London. We would be doing exactly the same but there’s a recognition that in the long run, we will be partners working on some of the common challenges and opportunities.
The conservation has been condensed and lightly edited for clarity.