The biggest financial centres in Europe outside of London are upping their game when it comes to attracting the business that the City could lose as a result of Britain’s vote to leave the European Union.
Since the EU referendum result, chatter has increased that major financial institutions could move substantial numbers of staff and operations away from London to avoid the worst impacts of Brexit.
Russian bank VTB has already said that it
is moving its European headquarters out of London in response to Brexit, and while it is a fairly small name in the grand scheme of things, VTB’s move could be the first trickle of a flood of business leaving the capital.
Obviously, any business that moves out of London has to move somewhere, and as a result, cities across Europe are starting to make their case to attract this business. So far, Frankfurt, Paris, and Dublin have been the most frequently mentioned, but Amsterdam, Luxembourg, and Jersey are also in with a shout.
At an event in London attended by Business Insider this week, representatives of business lobbies from both Paris and Frankfurt pitched hard to investors and business people that their cities should be the go to 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 sat on a panel to discuss the future of the world’s financial centres at the Brexit & Global Expansion Summit, spending much of their time trying to put forward the case for their respective cities.
Vaeth — who previously said “t
he welcome banner is hung and Frankfurt’s doors are wide open” — told the audience that they should “never waste a good crisis,” before launching into a near 10-minute long pitch about why Frankfurt is “uniquely positioned” to take advantage of any 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 pitched the fact that his city is the “City of Corporates,” saying: “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 the fact that Paris is a fintech hub, and has more registered firms — around 800 — than Berlin, a city often cited as continental Europe’s premier destination for startups.
Finally, France’s envoy to the Brexit conference made a big point of stressing that the country is in the process of changing its laws to make it a better destination for finance. “We are trying to improve our regulatory and physical environment, he said, noting that foreign executives coming to Paris pay 30% of tax, compared to 43% in London, thanks to new non-dom rules.
We are working on our labour rules, knowing that we need to have much more flexibility.
“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.”
Reforming laws looks to be a key part of any move away from London. For instance, the German government is reportedly considering altering a major employment law in the country to make Frankfurt a more attractive destination for banks and financial services firms.
The Financial Times reported last week that Germany is “looking at imposing an upper salary limit on employee protections of €100,000 (£90,279) or €150,000, which would make conditions such as redundancy terms less generous.”
Essentially the new law, if passed, would mean high-earning workers — like bankers — would not be entitled to as strong job protections, making them both easier and cheaper to sack.
Frankfurt and Paris’ pitches were so comprehensive that at one point, Vaeth started talking about the quality of the air in Frankfurt, pitching the city as a good place to raise children, something he said could be attractive to bankers. Vaeth also cited Mercer’s well-respected Quality of Living ranking, noting that Frankfurt finished 7th globally, well ahead of both Paris and London.
Frankfurt Main Finance’s boss then lamented that “Frankfurt is sometimes described in the media as something between a cemetery and a backwater country.”
Financial passporting and euro clearing
There are two big areas of concern when it comes to London’s role at the heart of European finance — financial passporting, and the clearing of euro-denominated trades in the City.
Current EU law allows European banks to operate branches in the UK that do not need to be separately capitalised from the parent company abroad. Similarly, non-EU banks, such as those from the US or Asia, can use their London subsidiary to sell services to clients across the EU. This has allowed London’s financial centre to act as a hub for global firms looking to do business in the EU.
The use of this bank “passport,” which allows banks in London to access the EU single market of 28 nations (including the UK), could be one of the rights the UK loses in the British exit from the EU.
It is now looking increasingly likely that passporting rights are going to be a huge issue of contention in any Brexit negotiations.
In September, the chief of Germany’s Bundesbank, Jens Weidmann warned that the UK won’t get a special deal from the EU on the passports, and will need to allow free movement of citizens from EU nations, if it wants to keep them.
Weidmann told The Guardian that “passporting rights are tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area.”
It is most likely that the passport would be lost if the government opts for a “hard Brexit” — Britain leaving the European Union without access to the Single Market. There have been rumours in recent days that the government may try to preserve passporting by paying the EU, such is its importance.
Along with the possible loss of passporting rights, the removal of Britain’s role as the centre of euro-clearing is an issue that has been worrying traders and brokers in the City since Britain voted to leave the EU. Since the euro was first used as a currency in 1999, London has acted as the centre of euro-clearing for derivatives, despite not being within the single currency area. It has had to fight for the right to do so, with the UK last year winning a court battle against the ECB to continue clearing in London.
However, because of Brexit, that status is once again up in the air, with France’s finance minister Michel Sapin saying earlier in October that “one thing is sure, no one in the Eurozone will accept that the main clearing place will be outside the European Union.” Sapin’s view was echoed by Vaeth on Monday, with the German saying: “
That [euro-clearing] is very likely not going to persist after the triggering of Article 50.”
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