Finance

UK finance reigns in Europe despite Brexit fallout

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LONDON (AFP) – One year after Britain’s formal exit from the European Union, a robust financial sector in London continues to dominate the continent despite losing major businesses and bankers to competing positions.

“London has spent hundreds of years as a global financial hub,” said Lee Wilde, head of equity strategy at Interactive Investor. “Brexit is not going to change that, certainly not anytime soon.”

The city, whose skyscraper offices are largely deserted due to Covid restrictions, has yet to strike a post-Brexit deal with Brussels on the equation, which would allow London-based companies to operate fully in Europe.

London has lost out over the past year to rivals in stock trading, and is struggling to reclaim gains after the blows unleashed upon Britain’s exit from the European Union.

Trade in the London stock market fell by nearly 40 per cent at the start of 2021, with London banned from offering EU-listed shares to clients outside the UK.

Amsterdam has benefited the most, overtaking London to become Europe’s largest hub in terms of stock trading volumes for most of the past year, according to Cboe Global Markets.

London remains the world’s second largest financial center after New York when various factors including infrastructure, reputation and business environment are taken into account, according to the Global Financial Centers Index 2021.

The city also remains a dominant financial center on a global scale in many markets, including foreign exchange and derivatives.

“Withdrawing from the European Union brings with it challenges and there are threats from Paris, Brussels, Frankfurt and Amsterdam,” Wilde told AFP.

“But the potential for European competitors to snatch the crown of Europe’s primary financial center from the UK is slim.”

The city is able to maintain a strong position in the world of finance also thanks to a large network of support services.

“London still has a huge amount of money in its favour,” said Ross Muld, investment director at AJ Bell.

He said the city offered “an ecosystem for banks, advisors, lawyers, fund managers, hedge funds… (provides) capital at an affordable price to companies that need it so they can invest, innovate, grow and create jobs.”

No mass exit for employees

However, in the wake of Brexit, about 44 per cent of UK-based financial services firms have moved or plan to move operations or employees to the EU, according to EY Financial Group.

It added that total asset transfers amounted to 1.3 billion pounds ($1.8 billion, 1.6 billion euros) at the end of last year.

Dublin and Luxembourg are home to the most office moves, while Paris won the most for employee turnover.

French President Emmanuel Macron in June opened a headquarters in Paris for several hundred JP Morgan Chase traders relocating from London.

The British capital has so far only lost 7,400 financial dollars, according to EY.

This is seen as a drop in the ocean, as the UK financial sector employs more than 1 million people, 400,000 of whom are in London.

Recruitment advisers said that although the pandemic has contributed to limiting movement, a future mass migration of staff from London to the European Union remains unlikely.

“London continues to be an attractive destination for investment business and financial professionals alike,” said Håkan Enver, managing director at Morgan McKinley.

“So far we have not seen a mass exodus due to Brexit, and now it is unlikely that this will ever happen,” he told AFP.

London’s financial allure was highlighted last year by a record number of companies making their debuts on the stock market.

There were 122 initial public offerings – the highest amount since 2007 – with a combined market capitalization of £16.8 billion.

However, in 2021 there was also a record initial public offering by Euronext, whose exchanges include the Paris, Amsterdam and other stock exchanges across Europe.

“The real risk (for London) is not a ‘big bang’ but a slow downturn as activity shifts to other centres, most likely in the US or Asia, and that is only if the UK fails to respond to competitive pressures from other global finance groups,” said Jack Neil-Hall of the Group TheCityUK financial sector lobby.

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