London’s future as a global financial center is now in doubt

The City of London’s future is cloudy.
The City of London’s future is cloudy.
Image: Oliver Staley
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Financial services make up 8% of Britain’s GDP. With its associated law, consulting, and accounting firms, it employs as many as 2 million, or 1 in 7 UK jobs. The nation is the biggest exporter of financial services globally. By some rankings, London is the world’s No. 1 financial sector capital, ahead of New York, Hong Kong, and Singapore.

What happens to those figures now that the UK has voted to leave the EU is anyone’s guess.

 JPMorgan Chase has said that it will probably have to move people, though no plans are yet in place. Prior to the Brexit vote, Jamie Dimon, the bank’s CEO, said 1,000 to 4,000 jobs could be moved. Rumors began swirling today (June 24) that Morgan Stanley has started planning how to move 4,000 people to Frankfurt, although the bank has denied the report. UK bank stocks took a pounding today, falling as much as 20%.

Financial firms that locate in Britain can operate in the EU, via a mechanism called “pass porting.” Britain will have to renegotiate these rights, and many believe it will be impossible to secure better terms than they have now.

“It’s a significant risk that we won’t get as favorable terms as we have now,” said Jon Terry, head of the financials services practice at PwC in London.

London’s currency traders will also lose the right to clear euro-denominated securities and foreign currency trades, with the business probably moving to Frankfurt, according to Politico.

Terry said there are about 1.2 million financial service workers in London, about 150,000 of whom are EU nationals. “What are the terms of agreement around that?” he asked, noting that immigration was a significant flashpoint in the Brexit debate.  

Others are optimistic that the negotiations will be smooth. “Financial services will continue to be the UK’s biggest export for the same reasons it has been for the last 100 years, which is its pragmatism, innovation and desire to trade,” said Jeremy Leach, CEO of Managing Partners Group,

He said the UK would not be excluded from the EU’s pass-porting regime for financial products:

“Most of the EU’s regulatory processes were adapted from those of the UK’s Financial Conduct Authority anyway, so negotiating a workable agreement will be more straightforward than for other [European Economic Community] members that are still evolving on their regulatory framework.”

Other industries will likely be affected as well.

London has, by far, more European headquarters of big companies than any city on the continent, according to Deloitte. The firm examined the 250 largest companies in the world. Of those with a European headquarters office, 40% have chosen London as the location for them, compared to 8% for Paris and 3% for Madrid. One smaller company, Japanense auto parts maker Exedy,  has already said it may have to move its headquarters, according to a board member interviewed by Bloomberg, and other companies may follow.

In an introduction to the Deloitte report, London was trumpeted as “fastest growing city in Europe and an unrivaled international hub for business.” The introduction’s author? Boris Johnson, the then-mayor of London and a leading campaigner for the UK’s exit from Europe.