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Brussels tries to force more City bankers onto the Continent

·2-min read
A man talks on the phone as he walks through the City of London's financial district
A man talks on the phone as he walks through the City of London's financial district

The European Central Bank (ECB) is making a fresh push to get more UK-based bankers and assets to move to the Continent as tensions over the City’s post-Brexit future mount.

Europe’s top financial regulator has renewed its drive to get more resources back inside the EU after temporarily granting banks a reprieve due to the pandemic.

Sources told the Financial Times that the ECB was becoming "increasingly forceful" in its demands for lenders to beef up their EU hubs post-Brexit, with some banks told that they must relocate hundreds more staff than they had expected.

The EU is trying to wean itself off its dependence on the City for access to capital markets so that after Brexit it can rely on various financial centres around the bloc rather than one dominant hub.

Banks have known for years that they have to move UK assets and jobs to rival EU cities, but many hoped a deal to soften the rules would be brokered.

Édouard Fernandez-Bollo, an ECB board member, made his stance clear last month when he said that "empty shell institutions are not acceptable in the euro area. Banks must allocate sufficient capital and liquidity, as well as an appropriate amount of high-quality resources for risk management, to establishments within the banking union."

Banks have moved UK assets worth more than £1.3 trillion to the EU due to Brexit, and almost €6bn of EU share trading shifted from London to the Continent in the first trading day of this year.

Boris Johnson’s former economics adviser, Gerard Lyons, said in May that ministers must “go into battle” for the City, which was largely left out of the Brexit negotiations, adding that it is up against “an aggressive EU and intense global competition”.

The ECB's renewed call for action comes months after warning that it would increase its scrutiny of major lenders to ensure they were not relying too much on their London divisions.

It has been cracking down on a practice known as “back-to-back” trading, where banks serve EU clients while keeping senior staff and capital in the UK.

However some banks have struggled to get staff to relocate. When JP Morgan tried to move 15 London traders to Paris over the summer, about half resigned. “It would be unbelievable to say people have formed an orderly queue,” said one banker at the time.

Last week Brussels was accused of trying to “grab business through regulation” after it emerged that it was preparing for an overhaul of rules that would make it more difficult for non-EU banks to operate in the bloc. The changes would affect the way foreign bank branches are regulated and if enforced could come as a further blow to the City.

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