The Greenwich meridian sees both the closing of the Tokyo market and the opening of New York’s in the same working day – consistent, literally, as clockwork. Its not alone in this of course, but London has long made use of its position as a conduit between the world’s main financial centres. Like the rising and setting of the sun, it’s a position London could rely on.
Rightly, London is seen and sees itself as central to the world’s financial and professional services market. The UK’s financial services trade surplus of $88bn in 2017 was nearly equal to the combined surpluses of the US, Switzerland and Luxembourg, the next three leading countries. That figure climbs to well over $100bn when you add other related professional services. It is home to the world’s most respected legal system, alongside 40 per cent of all global corporate arbitrations. It falls at the intersection of service industries like insurance, along with the introduction of innovative new products such as the trade in euro-dollars.
London’s reputation as a global hub for finance is clearly strong – but as we know in my industry, relying on reputation is ill-advised. There is still little certainty among London’s market leaders on whether this status is secure.
Uncertainty since the trigger was pulled has forged an environment of disruption – the perfect conditions for challenges by other European services centres. Other EU cities, particularly Frankfurt, Paris, Luxembourg and Dublin, have increasingly marketed themselves as viable alternative services hubs for the post-Brexit age. Attracting market share from the UK capital, and winning the European subsidiaries of those financial companies that will have to relocate part of their operations has been the name of the game for months.
Paris has played a masterstroke here. Last year’s decision by the justice ministry to open an international English-language commercial appeal chamber at the Paris Court. Not only can litigants and lawyers speak English there, international law including English Common Law, will be taken into account. English law is the law of choice for the world’s biggest international disputes, but there is still no certainty that judgments will be recognised elsewhere in Europe. Opening English-language international schools and allowing bankers moving from London to opt out of French state pension schemes, are moves made in the same vein.
So how seriously should London take the risk to its reputation? It is clear that other financial centres stand to benefit from Brexit, but the euphoria of the early months after the referendum has become more muted than anticipated in other European Financial centres. It is increasingly clear that the size of London’s financial industry might actually be too big for European centres to digest. London’s population of 800,000 City workers is equal to the size of Frankfurt’s entire population.
While there will be a trickle over the next years from London, there will be no centre in Europe that stands to eclipse its prime position in asset management, investment banking or the capital market. Rather, Brexit will enable a mild rebalancing of the European financial industry towards the rest of the EU, inflicting a correction on London markets but not their ruin.
London’s attributes will prevent a total eclipse, whether via the quality of its legal services or the wealth of experience of its traders, which cannot be shifted overnight to other centres. It is a unique business ecosystem that will ensure that some the world’s major transactions will continue to be done on the banks of the Thames. As the recent New Year fireworks showed, London has endeavoured to not only survive after Brexit, but also to remain a city that is open to Europe.
London cannot be complacent about its place in the European services ecosystem. But neither should the EU take lightly the strategic importance of London. The UK financial industry accounts for approximately 40 per cent of Europe’s assets under management and 60 per cent of its capital markets business. The City of London has been responsible for not only providing liquidity to EU investors but essentially bankrolling a large part of its economy. The importance of London to Europe’s economy should call for a relationship between London and Europe that remains symbiotic and as close as possible.
The EU must work to develop a sustainable relationship with the UK, that ensures London continues to offer what European businesses need: a world-class service. London must preserve sufficient access and mirror the EU’s most significant regulations to prevent transactions moving outside Europe to, say, New York.
It might even be possible to re-imagine an EU-UK rapprochement that is ultimately based on shared values but devoid of heated rhetoric. If anything, one of most the unintended consequences of the referendum was the injection new life into Britain’s laconic pro-European movement. But a reunion will be only be made easier if London preserves it ties to Europe and its position as Europe’s preeminent services city. We have seen how unstable the current socio-political landscape can be – neither London nor the EU can afford to rest on their laurels: the clock is ticking.