- U.K. finance must retain passporting rights to truly thrive
- Britain should foster closer links to emerging markets, China
London’s financial lobby group warned that the city’s status as the world’s pre-eminent financial hub could be undermined if the U.K. loses the right to sell its services freely within the European Union as doubts mount over Britain’s ability to retain full access to the trading bloc.
Being able to tap the EU’s single market “under broadly similar conditions” is “of utmost importance,” TheCityUK said in a report Wednesday. Europe’s biggest companies, who rely on banks in London to raise capital and provide financial advice, will also suffer if Britain is shut out after the U.K. leaves the 28-nation bloc, according to the report.
U.K. Prime Minister Theresa May, who has indicated she’d like to preserve so-called passporting, said last week that she’s not wedded to any particular model for the nature of the trading relationship with the EU. May has vowed to restrict the free movement of EU citizens to the U.K. as voters demanded, and no nation has both passporting rights and curbs on immigration.
"What’s top of the list for financial services is access to the EU single market," CityUK Chief Operating Officer Marcus Scott said in an interview. "We want to make sure that in the upcoming negotiations those services are treated as a priority."
Under EU law, a bank incorporated in any member state can sell products and services in all the others, accessing a $19 trillion integrated economy with over 500 million citizens. Deutsche Bank AG expects the U.K. to lose passporting rights, Business Insider reported last month, citing an internal document, and several lenders said in recent weeks that they’re prepared to deal with that scenario. That may mean relocating thousands of employees to the continent.
"Despite the U.K.’s clear competitive advantages, we cannot afford to be complacent or we will lose out to other financial centers that are vying to win the race to attract more business," CityUK and Barclays Plc Chairman John McFarlane wrote in the report. "Decisive action is required to sustain the industry’s competitive advantages."
Barclays is prepared to shift some of its London operations and jobs to other EU cities such as Dublin if needed, Chief Executive Officer Jes Staley said last week. HSBC Holdings Plc and JPMorgan Chase & Co. have said they may have to move employees abroad.
That risks depriving the British economy of millions of pounds in tax revenue. Financial services firms paid 66 billion pounds ($88 billion) in U.K. taxes in 2014, more than any other sector, CityUK said in the report.
Brexit threatens to add to challenges London already faced from slumps in the activities that dominate its financial center. The U.K.’s strongest position comes in fixed income, currency and commodities, or FICC, businesses, which have faced a multiyear decline amid new regulations. The U.S. meanwhile, has greater share in faster growing areas like fintech and private equity.
U.K. lawmakers need to grasp the opportunities offered by Brexit. They should promote even closer economic and regulatory integration with key strategic partners such as the U.S., which accounts for 49 percent of the foreign direct investment into financial services in Britain, the report said. The City should also "dramatically accelerate" its links with emerging markets such as China and India, which import $26 billion and $11.5 billion respectively in financial services annually.
"We’ve got to focus on delivering agreements which continue to give us access to those global markets both mature and emerging as well as the EU," Scott said.