Latest posts by Alex Munro (see all)
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The most powerful financial hubs in Europe outside of London are upping their game when it comes to luring away the business that the City might lose in the aftermath of Britain’s vote to exit from the European Union.
Russian major bank VTB has already made an official statement about moving its European headquarters out of London, and while it is a comparatively small name in the grand scheme of things, VTB’s action might be the first trickle of a torrent stream leaving the capital.
The next logical question would be: if businesses are moved out of London, where will they be shifted to? Cities across Europe have already started their wooing campaigns to attract this business. At this point, Paris, Frankfurt and Dublin have been named on more than one occasion, but Amsterdam, Luxembourg, and Jersey are also in with a shout.
At a recent event in London, representatives of business lobbies from Frankfurt and Paris advocated their cities to investors and business people assuring that their city would be a perfect destination if the City of London loses its potency.
Hubertus Vaeth, the managing director of Frankfurt Main Finance, and Arnaud de Bresson from Paris Europlace participated in a panel discussion talking over the future of the world’s financial hubs at the Brexit & Global Expansion Summit, spending a lot of their time doing their best to put forward the case for their respective cities.
Vaeth told the audience that they should “never waste a good crisis,” before starting a 10-minute long advertising campaign proving Frankfurt is “uniquely positioned” to take advantage of a shift away from London.
“I think Frankfurt is uniquely positioned to benefit from it. First of all, because eight out of the ten biggest banks in London also have subsidiaries in Frankfurt, and six out of the ten of the biggest insurers have offices in Germany, either in Frankfurt or Munich. There’s a similar structure to the London market, just in miniature size,” Vaeth said.
De Bresson called that Paris is the “City of Corporates,” adding: “Paris is the city of your clients. The city of corporates. Paris is a business centre. When we ask Japanese or Chinese banks what is the difference between Paris, London, and Frankfurt, they say Paris is the city of corporates, while Frankfurt is where our competitors are. So they say ‘Our objective is to be near our clients, and we will come and make business in Paris.'”
“We have a capital market culture very near to London’s — London is our model,” he added.
De Bresson also emphasised on Paris being a fintech hub, and having more registered firms than Berlin, a city often cited as continental Europe’s premier destination for start-ups.
Finally, France’s representative to the Brexit negotiations made laid a stress on that the country being is in the process of altering its laws to make it a better destination for finance.
“We are working on our labour rules, knowing that we need to have much more flexibility. The Macron law has been the first step … and we are trying to ensure that these reforms are furthered.”
If passed, the new law would mean high-earning employees would not be entitled to strong job protections, making them both easier and cheaper to sack.
Frankfurt Main Finance’s boss also made his move saying: “Frankfurt is sometimes described in the media as something between a cemetery and a backwater country.”
Financial passporting and euro clearing
When it comes to London’s position as the European finance hub, there are two major areas of concern — financial passporting, and the clearing of euro-denominated trades in the City.
Current EU legislation system allows European banks to run branches in the UK that do not require separate capitalisation from the parent company abroad.
Similarly, non-EU banks can use their London subsidiary to conduct operations across the EU. This has enabled London’s financial hub to act as a centre for global firms seeking to do business in the EU.
Loosing passporting rights, which enables London-based banks to access the EU single market of 28 nations, might be one of the privileges Britain will lose when it exits from the EU.
In September, Jens Weidmann, the chief of Germany’s Bundesbank, cautioned that Britain won’t get a special deal on the passports from the EU, and will have to allow free movement of citizens from EU nations, if it wants to keep them.
If the British government opts for a “hard Brexit”, Britain will be most likely deprived of passporting rights as well as access to the Single Market.
Apart from losing passporting rights, one more issue that has been worrying traders and brokers in the City since Britain voted to exit from the EU is the removal of Britain’s role as the centre of euro-clearing.