Brexit uncertainty could force financial services firms to enact contingency plans
The City’s ability to adapt to change is one of its great strengths – but if it is to succeed after Brexit it must be given a coherent and clear framework, warns Jonathan Reynolds
One of the first visits I made to the City after taking on the financial services brief was to the iconic Lloyd’s of London building in the heart of the Square Mile. Extraordinary modern architecture hosts a fascinating history spanning 300 years, from simple beginnings in Edward Lloyd’s coffee house to an insurance behemoth underwriting nearly £30bn a year. The City is replete with similar tales – histories which have built the foundations for its strength as an international finance hub today.
This history shows that one of the City’s strengths, and perhaps the secret to its longevity, is its ability to adapt to changing circumstances. With Brexit on the horizon, I have every confidence that the City will be able to use these strengths to build a cooperative and successful relationship with its European neighbours.
But to be given the best possible chance of doing this, it needs an overall framework of certainty and clarity, which has so far been lacking from our Conservative government.
One of the key issues at stake is the need for an implementation period during which the existing state of affairs can remain intact while new processes are established. As we approach the end of the year, the value of this transition period diminishes by the day.
Financial services firms are being placed in the difficult position where they may be forced to enact contingency plans to avoid a cliff-edge scenario in March 2019. This means jobs, resources and capital going to the continent in preparation. It is unlikely that process will be reversed once it starts, even if a deal does ultimately mean that these subsidiaries were surplus to requirements.
The EU’s decision this week to move the European Banking Authority (EBA) to Paris has been a harsh reminder for those in the financial sector of the real potential impact of Brexit. If managed properly, our exit should not represent an existential threat to the prospects for London as a financial services hub.
The City has built a strong reputation in recent years as an incubator for cutting-edge financial technology and investment. This should be able to grow so that, in tandem with the attractions offered by Frankfurt, Paris and Barcelona, London can continue to form part of a European financial market which is a serious global competitor.
Nonetheless, it is inevitable that some jurisdictions will make a land grab for a slice of London’s diverse and thriving business. Palpable concerns in the City are understandable for a sector which is reliant on interconnectedness to keep hold of its world-leading position.
London is a trading hub which attracts capital flows from around the globe, often touching on many of the mutually dependent industries within the City: insurance, law, accounting, fintech, clearing – the list continues.
As a result, how the particular issues of the sector are catered for in Brexit negotiations will be key to its future. How will services be passported into the European Union post-Brexit? How can it continue to collaborate with the rest of Europe in building robust regulation? Critically, what will be the approach to the status of EU nationals, upon whose talent the financial sector is dependent?
Financial markets are becoming more global, more interconnected and more automated, in many ways to the benefit of the consumer and the overall stability of the system. Brexit should not be a reason to turn back the clock on that progress, and it is essential the City can retain its internationalist outlook. This should be eminently achievable, but only within a coherent and considered framework for Brexit.
Jonathan Reynolds is Labour MP for Stalybridge and Hyde, and shadow City minister