LONDON — The United States of America will be the only beneficiary of any financial services fragmentation after Brexit, the head of investment banking at UBS believes.
Speaking at a breakfast event hosted by Financial News in London on Tuesday, Andrea Orcel warned that neither the UK nor Europe would “win” if Britain leaving the EU leads to the fragmentation of Europe’s financial services industry.
There are concerns that Britain will lose financial passporting rights post-Brexit, meaning many banks will have to set up new subsidiaries in European countries if they want to continue to sell services to the EU.
If that happens, the USA would be the “only clear beneficiary,” Orcel said. He argued that the continent’s financial services provisions would become less concentrated, and lead to the “fragmentation of liquidity.”
This would then benefit the United States, and New York in particular, which has a steady regulatory framework in place and is unlikely to change. The House of Lords European Union select committee concluded last year that “much of the business lost by the UK would be more likely to relocate to New York than to the EU.”
However, Orcel said that London is unlikely to lose its role as a hub of European finance thanks to the “ecosystem” that exists in the capital. There is a “whole ecosystem around financial services,” he said, which includes housing, schools, culture, and other non-work related concerns. It would be “difficult to replicate” in other European cities, he added.
Orcel said many finance workers who live in London also fundamentally don’t want to leave the capital and be forced to start new lives elsewhere, saying that there is a “stickiness” to London.
However, he warned that a Brexit transition deal should be struck as quickly as possible to stop any financial exodus, as banks need to make final decisions about moving staff by the first quarter of next year. That’s because banks and European regulators need at least a year, if not longer, to set up fully functioning branches and subsidiaries in Europe to maintain activities.
When it comes to UBS, Orcel said that the bank is “keeping its options open” and has not committed to where it will move staff, or how many people would be moved. He added that the bank is looking to find people who are willing to move cities, rather than forcing relocations.
Orcel said shortly after the EU referendum last year that “a significant percentage” of UBS’ jobs may have to be relocated to the EU.