London to double down on markets beyond EU if locked out by Brussels

Tim WallaceThu, 11 February 2021, 6:14 pm

City - JOHN SIBLEY/REUTERS
City – JOHN SIBLEY/REUTERS

The City will lift its horizons and double down on global trade if the European Union cuts off access to its financial markets, grandees and experts have said.

Senior figures across the Square Mile said that London will thrive after Brexit by focusing on fast-growing economies in Asia and Africa and investing heavily in new products such as green bonds.

It came after Andrew Bailey, Governor of the Bank of England, warned that Brussels is likely to block EU companies from doing business with UK financial institutions – a move which would spark higher costs for millions of consumers on the Continent.

Meanwhile data showed that Amsterdam overtook London as Europe’s biggest share trading hub in January. New figures on Thursday also revealed that Britain’s share of the market in euro-denominated interest rate swaps fell from 40pc in December to 10pc in January, according to the Financial Times.

Sir John Peace, former chairman of Standard Chartered bank, said: “There is a great opportunity over time for the City beyond EU membership, in growth markets in Asia and Africa.

“We should strive to protect what we already have, whilst reaching out to new, faster growing regions of the world.”

Mr Bailey was right to suggest that the EU’s actions will cause harm, Sir John said. Preventing market access could push up the cost of mortgages and insurance premiums on both sides of the Channel. Sir John added: “It seems to me that the EU needs the City and the City needs the EU.”

Bailey - Tolga Akmen/Reuters
Bailey – Tolga Akmen/Reuters

Leading figures believe that the key to future success is embracing new growth areas such as financial technology, or fintech, where London is already easily Europe’s most important investment hub. It attracted $4.1bn (£3bn) of cash last year, more than the two next biggest European destinations combined.

Britain is also moving into other new markets. Trading in China’s renminbi currency overtook that of the pound-euro pair in the City two years ago in a major milestone.

Chris Cummings, chief executive of The Investment Association, said: “UK investment management is already one of the most international in the world both in terms of the customers and businesses it serves, and the assets it invests in, and now we have an opportunity to grow the international business beyond the EU even further.

“To do that we need to maintain our leading position on FinTech, create a globally competitive funds range, and become a centre of excellence for sustainable and responsible investing.

“The industry is working closely with the government and the regulator to ensure we can capitalise on this opportunity, to the benefit of the wider UK economy.”

UK firms have taken steps such as establishing subsidiaries in the EU so they can continue serving clients amid growing fears the EU will refuse to grant access for London-based companies under its so-called equivalence regime.

On Thursday, former lead Brexit negotiator Michel Barnier accused businesses of using shell companies to gain access to the EU’s Single Market rather than setting up a real office.

He said: “As far as financial services are concerned, we know there are attempts to circumvent the new rules through what we call letterbox structures.

“Needless to say national authorities of the EU in each and every country and the EU authorities themselves will be very, very vigilant. In the next few weeks and months, I recommend everyone to be careful.”

Some European regulators have been probing whether such letterbox companies are fully operational and staffed. Supervisors in some countries expect banks to move staff if almost all their EU business is still conducted in London.

Talks are continuing around qualifying for equivalence access to EU markets – but the value of this status is diminishing over time as companies and markets adjust, so the City of London is already moving on to new growth opportunities.

A senior finance source said: “The industry is not begging the EU for access anymore. It would be great, it would make life a little easier, but now the focus is on making the UK as competitive as possible.

“It is not about deregulation, but looking for things to iron out or change or make life more efficient, to cut the cost of doing business. It might reduce the chance of a bank leaving, or make a boss thinking about hiring more trading staff or getting a new office think more about the UK.”

Britain is competing with Asia and New York in global markets, so the aim should be to make companies think about doing business here instead of overseas.

Emma Reynolds, of industry group TheCityUK, said: “When we talk to EU counterparts, we do stress there is a bigger world out there beyond the UK and EU. For London, our main competitor is New York, that is the league that we are in.

“The rising Asian markets are the other competitors. There has been no other European centre that is anywhere near as successful and wide-ranging as London.”

Brexit could also open access to other significant markets through trade deals, she added.

It will not necessarily be an easy or cost-free shift, however, as companies risk losing some EU clients in exchange for uncertain benefits in new markets.

Sir Philip Hampton, former chairman of Royal Bank of Scotland, said: “UK banks, for example, have stopped serving many long-standing customers in the EU.

“Some more distant markets are big, and growing faster than Europe, but can be hard to serve, especially for small businesses. It is why the Office for Budget Responsibility projects a net hit to trade from Brexit.”