Ever since Britons voted to leave the EU, one of the biggest worries has been what will happen to the UK’s prized role as a preeminent global hub for trading. So far, when it comes to the $6.6 trillion-per-day market for currencies, London is increasing its lead versus New York and other global centers.
The UK’s market share for foreign-exchange trading increased to 43.1% in April 2019, compared to 36.9% in 2016, according to preliminary results of the Bank for International Settlements’ (BIS) triennial survey. The share of the US shrank three percentage points to 16.5% during that span, while Hong Kong’s rose by just under a percentage point to 7.6%.
The BIS surveyed over-the-counter currency (OTC) markets, or financial assets that aren’t traded on an exchange. OTC markets comprise the bulk of the global currency market.
Brexit is a serious challenge to the UK’s financial sector, which makes up 6.9% of the country’s economy and supports 1.1 million jobs. Executives are still dealing with high levels of uncertainty—it has been more than three years since the referendum to leave the EU and it is still unclear when, if, and under what terms Britain will leave the bloc.
Financial institutions have been relocating workers, capital, and other resources to continental Europe and New York to prepare for the worst, with some £1 trillion ($1.24 trillion) of assets moving across the English Channel, according to consulting firm EY. Cities like Paris and Frankfurt have mounted sustained campaigns to lure bankers to their own financial hubs.
But so far, Brexit has not been fatal for the UK. In fact, London has tightened its grip on global currency trading flows and Britain remains Europe’s leading hub for financial technology startups. Bank of England governor Mark Carney recently said the impact of a no-deal Brexit would be less severe than originally thought because preparations have been put in place to reduce the fallout. Big international banks have moved fewer than 1,500 jobs out of the UK, according to the Financial Times (paywall), which is not as many as once feared.
“There is no reason to believe that Brexit should restrict access to financial markets,” Andrew Bailey, chief executive of the UK’s Financial Conduct Authority, said in a speech today. Britain’s market is a worldwide public good “and we want to keep it that way.”
Even so, there are signs that Brexit uncertainty has been a drag on economic growth: Gross domestic product increased 1.4% last year, the slowest rate since 2011, according to European Banking Federation data. The UK banking sector, which posted a return on equity of 5.5% in 2018, lagged behind France at 6.5% and The Netherlands at 8.2%, the data shows.
It remains to be seen what will happen to the UK once (or perhaps, if) Brexit actually takes place. Britain may then have a harder time luring top talent from the continent and elsewhere, given the political upheaval and uncertainty for non-Brits considering living here. But for now, the UK’s time zone—the best in the world to facilitate trading across geographies—common-law legal standards, and deep financial expertise remain key deciding factors for many of the world’s biggest financial institutions.