Contrary to what the doom-mongers say, Brexit provides the UK with an opportunity to grow its financial services industry.
London retained its title this year as the number one financial centre in the world. According to the Global Financial Services Index, the next European competitor, which is placed ninth behind New York, is Zurich. And of course, Switzerland is not a member of the EU. Frankfurt finished down at number 11.
I’m not being flippant about the importance of the EU negotiations – or some of the difficulties that we’ll face as we leave. But our success as a financial centre is not, and never has been, dependent on our membership of the EU.
The continued success of the country’s financial services after Brexit is critical to the country. It’s a huge creator of jobs and contributor to the UK’s tax receipts. Millions of people are employed in the UK financial services sector – and for 18 years, I was one of them as a barrister working for a variety of companies including Aviva and Credit Suisse. And last year our financial services sector was responsible for over £70 billion in tax to the Treasury – the highest figure for 10 years.
So, how can the UK financial services sector grow after Brexit? Firstly, by leaving the EU the UK will be able to set rules that are fit for the UK – not the rest of the EU.
The weight of EU regulation has imposed huge costs on the City, particularly on reporting, capital requirements and bonuses. According a recent study by the New City Agenda, the cost of regulation to financial services in the UK was £1.2 billion per year. Of course, we cannot get rid of all of this, but we can start the process of creating simpler strong regulations; regulations that do the job that needs to be done without tripping up banks in the process.
From March 2019, the government can start to readdress the issue, ensuring our tax and regulatory system works in a more business-friendly way, particularly for small- and medium-sized businesses, such as smaller asset management firms.
Secondly, as someone who works in Brussels, I know that new incoming rules and regulations on the financial services front are being written to benefit the eurozone – often to the detriment of the City of London. If we were to remain a member of the EU, we would have had no option but to toe the EU’s line and march in step to their plans.
I’ve been a member of the EU Parliament’s Economic and Monetary Affairs committee for three years now. I can tell you that the path they are following is one of greater harmonisation and centralisation with the development of the banking union and a single tax system. This is not something that would have benefited the UK.
But what about all the scare stories that you sometimes hear about? They are largely that: scare stories. Brexit won’t mean no change, but it certainly won’t be wholesale disruption that some predict.
In fact, there are a number of models for our future cooperation that would mean that the UK and the EU would both benefit. For example, the Government should consider allowing for a dual-regulatory regime post-Brexit. This would allow those financial companies more dependent on access to the single market to continue to access the market by adhering to EU rules while leaving those companies concentrating on domestic and non-EU business to do so under less stringent rules.
This would benefit the EU too; access to London’s institutions are a means to access other markets around the world.
While some jobs might leave to other EU cities, the numbers involved will be small. Banks such as Goldman Sachs have made some bold claims about their post-Brexit plans, but they are still waiting to see what arrangement the UK and the EU come to before they make any rash decisions.
Paris, which has expressed a desire to snatch some jobs from the City, is not even in the top 20 financial centres in the world. The idea that the French capital, or any other European city, can replicate the success of London immediately after Brexit makes no sense.
Even if some jobs that, for regulatory reasons, need to be in an EU country, do move, this would be more than offset by the UK’s regulatory system, which makes us one of the most competitive places to do business. Most of the businesses our financial services sector deal with are non-EU related – around two thirds according to some estimates.
London is the gateway for international banks and companies to the rest of the EU. But companies such as HSBC don’t just choose to set up offices in London because of access to the single market. There are other factors too, which the UK is miles in front on. They include a competitive rate of corporation tax, the English language, and access to skills and talent.
It’s these factors as a package which puts London right at the top as the strongest financial centre of the world and this, in combination with a more competitive regulatory regime, which will enhance our position for years to come.