Who knows how many jobs will be lost to the City of London as a result of the UK’s planned exit from the European Union? So far, nobody. But the Bank of England may soon get a better idea: the deadline for City financial operators to spell out their Brexit contingency plans has just passed.
One thing is obvious; the bland reassurances of the Brexit brigade that the City would survive largely unaffected are proving to be a fairy tale. Not least, the idea that “brass plate” operations established by City firms in places such as Dublin and Luxembourg would be enough to qualify for continued access to EU financial markets.
This week the European Securities and Markets Authority (ESMA), Europe’s top financial services regulator, issued three “opinions” on specific sectors – investment firms, asset managers and secondary markets. It made it brutally clear that “letter-box” relocations by London-based companies will not be acceptable to national regulators inside the EU.
The opinions confirm the general rule for all financial markets laid down by the ESMA in May, and backed up by Danièle Nouy, chair of the supervisory board of the European Central Bank, in June. “We will not accept shell companies in the euro area,” she said. London-based banks wanting to operate in the euro area “must be ‘real’ banks”.
Jamie Dimon, chief executive of J.P.Morgan, is one of the bankers who has been most blunt about the effect of Brexit. His bank employs 16,000 staff in the UK, and 75 per cent of their business is with EU companies. Before the referendum he warned that 4,000 of those jobs might have to move. This week in Paris he said that although only a few hundred would go at first, the eventual figure would depend on the demands of EU regulators. ESMA has now made it perfectly clear that token relocation is not enough.
Of course, much will depend on the outcome of the Brexit negotiations in Brussels, which have barely begun. Both finance houses and regulators are deeply frustrated that the UK government has yet to spell out any clear idea of the solution it wants.
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“A year has passed since the UK decided to leave the EU, and we are still in the dark about what the world will look like after Brexit,” says Nouy. “Even though we cannot see the shape of things to come, we still have to make plans.”
None of the financial institutions likely to be affected can afford to wait for the outcome. But some are hanging on in the vague hope that the EU needs London more than London needs the EU, and that a deal will eventually be done to allow them to carry on.
The Old Lady of Threadneedle Street is nervous. “Our current assessment is that the level of planning is uneven across firms and plans may not be being sufficiently tested against the most adverse potential outcomes – for example, if there is not withdrawal or trade agreement in place when the UK exits,” wrote Sam Woods, deputy governor, when he wrote to banks in April.
The most hard-nosed finance houses are already beginning to implement contingency plans, and they have to assume the worst to ensure they remain on the right side of the regulators. Even if a “soft” Brexit were possible, the jobs may already have moved.
Edited by Sam Ashworth-Hayes
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