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Undermining London finance not in EU interest: City official

Véronique DUPONT
·4-min read

Undermining London's key role in financial markets could ultimately backfire against the EU, a spokeswoman for the powerful sector warned as Britain and the bloc work out post-Brexit relations for financial services.

Catherine McGuinness, head of policy at the City of London Corporation, told AFP in an interview that British financial services, largely based in central London's 'City' district, have confidence in their future and strong position in sectors such as fintech, green finance, the foreign exchange market and derivatives.

While Britain departed from the EU single market and customs union at the end of 2020 with a last-minute deal, it did not encompass the finance sector, which makes up seven percent of the British economy and generated more than £132 billion in 2018.

The two sides are discussing a memorandum of understanding on financial services, which they aim to seal by March, but access by British firms to the bloc will likely rest upon easily revocable licences.

"If you look at somewhere to centralise your trading, you'd look at London rather than the EU," said McGuinness.

"I'm suggesting to our EU partners that since we have such integrated markets, undermining London is not necessarily going to be to their advantage," she added.

Preparing for the worst possible option, a no-deal Brexit which in the end did not materialise, financial firms have in the last few years moved out around 7,000 UK finance jobs to EU cities including Paris, Dublin, Frankfurt and Amsterdam, as well as around £1 billion in assets.

But according to McGuinness restrictions on financial UK services won't likely benefit financial centres in the European Union such as Frankfurt and Paris, but rather boost the likes of New York, Singapore and Tokyo,

"The biggest competitor to London... (are) global financial centres" outside the EU, she said.

With Britain's exit from the EU's single markets, the City has lost its "EU passport" that allowed its firms to pitch services across the bloc without supplementary agreements.

British financial institutions are waiting to see whether the EU will agree an "equivalence" regime -- restricted and easily revocable licences to trade in certain services.

So far the EU has granted only two, on derivatives clearing and on the settlement of Irish equity trading.

Key areas such as stocks and derivatives brokering have not yet been approved and the European Commission has requested additional information while not appearing to be in any hurry to grant permits.

"We're disappointed there hasn't been more attention to the financial services" that drive the British economy, McGuinness said of the trade deal signed over Christmas by London and Brussels.

But she said the City was "particularly pleased" that the two sides have started discussions on a memorandum of understanding on financial services, which they aim to seal by March.

She said this would help them work together on "common challenges: climate, progress of technology, international standards".

Among the urgent questions that need to be regulated is the sensitive issue of transfer of personal data between British and European institutions.

McGuinness said that unless there is compromise on this, there will be fewer opportunities for financial services on both sides of the Channel.

"I'm hopeful the EU will follow the UK's example, which has given equivalences to avoid fragmentation," she said.

- No regulation 'bonfire' -

McGuinness said that the job losses in the City had been less serious than initially feared.

She pointed out that before the pandemic hit, employment levels in the City -- financial jobs and others -- were on the rise.

Transactions in European stocks worth several billion pounds have nevertheless migrated to EU trading platforms since January 1.

But the City has its eye on its development outside the bloc.

British Prime Minister Boris Johnson, who was elected on the promise of Brexit and "liberating" the UK from what he described as the yoke of Brussels, gathered business representatives a few days ago to ask them where regulations could be changed to make them more efficient.

Europeans fear that Brexit will be used as an excuse for relaxing regulations, and doing so would undermine access to EU markets under an "equivalence" system.

"The City doesn't want to see any bonfire of regulations," McGuinness countered, insisting that its high level of regulation is part of its appeal.

"We want to be rule makers rather than rule takers," following similar statements by the Governor of the Bank of England a few days ago.

She called for cooperation with the European Union and limiting regulatory arbitrage in case of difference in regulations between London and Brussels.