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LONDON VS EUROPE – THE NEW FINANCIAL BATTLEGROUND

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Christopher Burke

By Christopher Burke, CEO of Brickendon

Christopher Burke

Christopher Burke

The whistle has been blown and the game has begun – with Article 50 triggered the UK has officially kicked off its negotiations to leave the European Union (EU). With speculation London could lose its status as one of the largest financial centres in the world, the fight to gain a slice of London’s financial credibility is well underway. Cities across Europe – from Frankfurt and Paris, to Dublin and Luxembourg – are competing against each other to tempt financial services companies to relocate some or all of their operations.

However, these locations need to showcase their best assets and align these attributes to meet the complex needs of the financial services sector. There are many different types of financial operations – ranging from asset management and commercial banking through to insurance and clearing – all of which operate in different markets and have different needs and requirements. It seems unlikely that a single base suits all types of banking operations.

With various officials trying to champion their cities and drum up business since the UK voted to leave the EU, we’ve put together an overview of the key European players looking to steal financial jobs from London.

Frankfurt

Currently the favourite to win over financial services companies, businesses looking to base themselves in Frankfurt could be drawn to the city’s close proximity to the supervisory arm of the European Central Bank (ECB), as well as the stable political and economic environment.[1] Frankfurt is situated in the heart of Europe and is already home to Germany’s largest stock exchange, as well as in recent weeks emerging as the frontrunner to coalesce big banks’ trading operations.[2] With some of the lowest costs for private accommodation and office space in Europe, in addition to established financial infrastructure, Frankfurt is seen as a highly-competitive option for individual bankers and larger financial institutions alike.[3]  On the other hand, Frankfurt is a comparatively small city constrained by its more modest size and is sometimes viewed as lacking the flair of more diverse and vibrant cities such as Paris.[4]

Paris

Paris has been on a sustained charm defensive, fighting hard to win over financial services companies. However, the campaign being waged by Paris to woo bankers, traders and big businesses risks being perceived as desperate. The French capital has been sending delegates of political and business leaders to London to try and tempt financial companies across the channel, while presidential candidates are making speeches about how the city can support financial services. Despite this, France existing wealth taxes that impact assets valued at over €1.3 million[5] are a powerful deterrent for many businesses and entrepreneurs as well as the world’s top banks and their employees.[6] This reputation for hostility towards the finance sector – in addition to far stricter employment laws, inflexible working regulations and higher costs – has hampered previous efforts to promote France as the ideal home for businesses.[7] As a result, France ranks only 29th on the World Bank’s rankings of the best countries to do business. The UK, on the other hand, comes in at 7th in the world.[8]

Luxembourg

Luxembourg is already a political and economic gateway into Europe. The city boasts the headquarters for the EU and the ECB, something which many financial companies based in this picturesque city already cite as a benefit. While various leading and global companies have established their European headquarters in the city, it’s been reported Luxembourg could only comfortably accommodate an additional 15,000 employees.[9] Although this seems a substantial figure, some estimates put the potential figure of London’s finance and banking jobs that could be forced to relocate to the continent at 40,000 – revealing Luxembourg’s limitations to house a new workforce.[10] The population of Luxembourg is almost 600,000[11] – over 400,000 people currently commute into the City of London everyday[12] – and while the quality of living is Luxembourg is high, it looks unlikely that it can easily absorb such large numbers of new arrivals.

That said, the UK and Luxembourg are united, particularly regarding financial services regulation. Both Luxembourg and the UK opposed EU proposals to introduce a financial transaction tax.[13] As such, it could be beneficial for UK financial services companies to be based in a city that is particularly supportive of the sector and shares similar ideals to the UK.

Dublin

Propelled to the forefront of international commerce thanks to Ireland’s “Celtic Tiger” economic boom, Dublin already benefits from a similar legal system to the UK while sharing the same time zone and language as its larger neighbour.[14] Several large multinational corporations already use the city as an important base while a vibrant start-up culture continues to attract businesses and entrepreneurs tempted by low costs. However, a lack of infrastructure – ranging from financial structures to the housing shortage – will likely limit the city’s ability to capitalise on new opportunities resulting from the UK leaving the EU.[15] Lingering memories of the damage inflicted by the 2008 banking crisis has also played a role in the increasingly subdued reaction from some quarters in the city.[16]

London

If you believe some reports suggesting there will likely be a mass exodus of the banking sector from our shores, it’s important to remember that London will likely remain as an important – if not preeminent –  financial centre. This is not only due to the number of financial services companies who have a stronghold in the city, but because of it being one of the largest European hubs with the skills, demand and capacity to meet the international financial services sector’s needs.

This is however not a time for UK financial services companies to wait and see – it’s a time to act. There are a range of options for the industry to consider – such as market access, potential unwinding, regulatory implications, staff and functions previously off-shored to other European member states, location of clients and competition for talent. We believe locating the right parts of your business in the right place at the right time can reduce operating costs by as much as 60 percent. By analysing the structure and methods of your financial services business, you can implement programmes to improve the organisations performance, helping it to improve its market position in an unpredictable landscape.

[1]Bloomberg, November 2016

[2]Financial Times, April 2017

[3]Bloomberg, March 2017

[4]Financial Times, March 2017

[5]Financial Times, April 2017

[6]FT.com, December 2016

[7]Reuters, November 2016

[8]The World Bank – Doing Business

[9]FT.com, July 2016

[10]Fortune, June 2016

[11]Worldometers

[12]City of London

[13]FT.com, July 2016

[14]Financial Times, March 2017

[15]Independent.ie, March 2017

[16]Politico, February 2017

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Seven lessons from 2020

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Seven lessons from 2020 1

Rebeca Ehrnrooth, Equilibrium Capital and CEMS Alumni Association President

 

Attending a New Year’s luncheon on 31 December 2019, we played a game that involved predicting the world in 2020. Some of the questions included: would Uber become profitable? Would the three-decade bond rally finally come to an end? Would the US hit a recession?

Unlike any of our predictions based on a traditional approach to business and predicting, we now know that 2020 became the year where business, professional and personal plans were turned upside down, reshaped and put-on hold. The proverbial black swan had arrived.

As revealed in a new CEMS Guide to Leadership in a Post-COVID-19 World, to which I contributed, the COVID-19 pandemic has exposed deficiencies in the 20th Century vision of leadership, giving a rare opportunity to question the status quo.

So, what are the main lessons from 2020?

  1. Humans are enormously adaptive.  This is not an extinction scenario. The world is getting used to dealing with global human disaster which may become a recurring event. Life continues guided by new parameters.

  1. No sector or country is immune to rapid change. Just as the leveraged finance and equity markets ground to a halt during the Global Financial Crisis, we have seen a disruption in the financial markets (including M&A) in 2020, including a significant redistribution of wealth between sectors; think tech vs airlines and the hospitality industry. When a market is disrupted it has secondary and tertiary effects such as less work for accountants, lawyers, financiers etc.

 

  1. Location is not as important anymore. The belief that finance staff need to be based in one of the financial capitals to be effective has been forever altered. Pursuing a career in finance from anywhere is becoming possible. However, it’s likely that over time, financial controls and human interaction will move the work model back towards the traditional office approach, as work is a critical sanctuary for people. While working from home may allow more time for family, chores and sports, it is mainly effective for people who already have their internal and external networks. For junior employees it presents a notable challenge as they may be forced to spend their formative years without a chance to really build their networks.

 

  1. Change is likely to be lasting. The opportunity for alternative finance and tech focused providers is enormous and 2020 will accelerate this shift. For example, many retail banks are providing rather poor customer service, blaming the pandemic. Even the most loyal customers will be heading elsewhere. For recent graduates and current students this is a major shift; future winners and key employers may not be names we are used to seeing in the headlines.

 

  1. There will be a spotlight on leaders with visionary strategy and understanding of the operations. 2020 showed many politicians and business leaders behaving like they were playing a game of snakes and ladders, rather than executing a thought-out strategy. The next wave of thoughtful leadership is urgently required.

 

  1. Collaboration leads to success. The definition of a pandemic is an infectious disease prevalent worldwide. A global problem requires a collaborative solution rather than each country and industry on their own. Quoting Steven Riley, professor of infectious disease dynamics at Imperial College London: “Once you have the knowledge and you share the knowledge, then you are able to take measures to push transmission much lower”. This principle is transferable to management education. In a world more complex than ever, investing in a degree is hard currency. Combined with the full global alumni network, corporate partners and schools, CEMS is capital that doesn’t depreciate.

  1. Resilience has become a watch word. Saint-Exupéry’s quote resonates with me: “If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.” We are in a new paradigm – so prepare for the next change. For COVID-19, while we hope that the vaccine will soon upon us, the broader long-term positive challenge remains.
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Data after Brexit: How does the end of the transition affect GDPR?

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UK's Post Brexit productivity puzzle

By John Flynn, Principal Security Consultant at Conosco

The UK has officially left the European Union now that the transition period has ended on January 1st 2021. But this could raise issues with one of the biggest bugbears for many companies – the international transfer of personal data.

Businesses can relax, somewhat – GDPR, which took businesses months to get their heads around, is not being replaced. It will continue as the UK GDPR 2018, and will still be based on the criteria of the Data Protection Act of 2018. However, the UK will retain the right to change the UK GDPR as it sees fit in the future.

The main changes apply to those who receive data coming into the UK from Europe. Transfers from the UK to other countries can continue under existing arrangements.

We know it can be difficult to cut through the legal jargon, so we have simplified what you need to know to protect yourself and your data:

1 – Update your privacy notice

Most businesses do not have the correct clauses in place ahead of January 1st, potentially exposing their liability, should something happen to their data. All company privacy notices online will need to be updated to specifically state ‘UK GDPR’, as opposed to ‘EU GDPR’. You will also need standard contractual clauses in place, which cover both parties – those transferring and those receiving the data.

 The Information Commissioner’s Office (ICO) has a list of what needs to be included in the standard contractual clause here. The ICO will remain the UK regulator for data protection, regularly liaising with each EU member state.

This also applies to Multi Corporate Groups who operate in multiple countries, who need to update their documentation and privacy notice to expressly cover the data transfers.  The UK has applied for an adequacy assessment, which would negate the need for contractual clauses, however this has not yet been approved by the EU.

2 – Data privacy assessments

Any company which runs applications and software should always perform a Data Privacy Impact Assessment. This was also in the guidelines before, but these assessments are now more important for those who outsource their IT operations internationally.

For example, when using a service such as a cloud-based system, the company must be sure that its service provider adheres to UK GDPR and stores the data within the European Economic Area (EEA), or has a binding corporate agreement with the company, where data is stored outside of the EEA. You should also, as mentioned above, make sure that a contractual clause is in place.

3 – Review local legislation

Contracts should now have contractual clauses that specify the responsibilities of the data controller and the data processor. If you are receiving personal data from a country territory or sector covered by a European Commission adequacy decision, the sender of the data will need to consider how to comply with its local laws on international transfers. You should check local legislation and guidance in this case.

4 – Cyber Security health check

The ICO is increasing its capacity and efforts to crack down on data breaches, post-Brexit. Now is a great time for all companies to have a health check to understand their Information Security posture and GDPR compliance. Nobody wants to be caught handling data improperly and fined when it could have been prevented with education and training.

A gap analysis performed by an expert is money well-spent. It’s also a fact that companies that have cybersecurity and Information Security controls are not only able to better defend against attacks but are also far better placed to recover from an attack.

Looking forward

It’s important that all businesses – large and small – are properly preparing their data storage and transferring for the 1st January. ICO has been busy setting examples by fining large, high-profile companies for failing to keep millions of customers’ personal data safe.

It will continue to come down hard on the data breaches of personal identifiable information and special categories of data. The saying ‘prevention is better than a cure’ rings truer than ever this year, and you will thank yourself if you make the efforts to properly store your data now, and not when it’s too late.

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2020 reflections and 2021 outlook

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2020 reflections and 2021 outlook 2

By John Hunter, Head of Banking and Fiduciaries, Finance Isle of Man

Reflections on the most surreal year

The Covid-19 pandemic has completely changed the world as we knew it, resulting in catastrophic loss of life and fears of a downturn hang over global economies like a sword of Damocles. In the UK, the new strain has further exacerbated the situation. As I am sure many have already said we are living in what could be called the most surreal times. People have been trying to cope with this “new normal”, by changing their lifestyles and evolving behaviours.

The Isle of Man responded swiftly to the pandemic by closing its borders and enforcing social restrictions which everyone respected and adhered to. Socially and culturally the Island demonstrated all the good things that come from living on a relatively small Island where community still means so much.

The Isle of Man’s financial services sector adapted quickly, seamlessly transitioning to working from home. The banks too adopted flexible remote working practices and continued to support clients around the world helping them navigate the challenging situation and making the most of any opportunities that arose.

Although there is no substitute for face-to-face interactions, we all embraced web-conferencing platforms like Microsoft Teams and Zoom to stay connected with contacts around the world and build and nurture business relationships, whether it was with financial services firms or high net worth individuals looking to relocate to the Island.

Furthermore, a priority for the Isle of Man has been to reinvigorate the business and cultural ties with South Africa. In a normal world, we would have travelled to the country, held in-person meetings with businesses and industry representatives and talked about building on our wonderful historic ties. However, because of the scale and breadth of disruption we had to change all our plans! We hosted a virtual roadshow which comprised a series of webinars exploring why it has never been more important for South African businesses and individuals to choose the right jurisdiction for long term financial planning.

Looking ahead to the future

We are all hoping that the global rollout of vaccines will provide the pathway to some form of return to normality and all the things people are missing will be back. Like amidst all periods of immense turmoil, interesting, new possibilities have emerged such as the revolution in work culture and a renewed importance of being close to nature and green spaces is. And these possibilities can help reshape society for the better.

The global economic recovery and rebuild might seem further away in the current environment especially amidst the new lockdowns. But we are confident in the resilience of economies and are hopeful that different industrial sectors and governments working together would result in green shoots.

The financial services industry has an important role to play in getting the world economy back on its feet. It is a core component of the solution to continue facilitating the financing of corporates, as well as to develop sustainable finance and nurture digital technologies which have proven to be vital during the pandemic. The sector should continue its cooperation and collaboration with governments and regulators to ensure efficient capital flows and financial stability for businesses and individuals.

Banks too have a crucial role to play as they are instrumental to the effective transmission of monetary policies and stimulus packages. As mentioned in a report by EY: “Financial insecurity in the wake of COVID-19 will require banks to boost consumer confidence and help build a more resilient working world.”

We expect the Isle of Man’s financial services sector and banks to continue navigating the situation with resilience as they have been doing thus far and contributing to the global recovery process. Also, we truly hope this will be our busiest year ever (subject to our ability to travel), with an extensive global schedule of planned activity to promote the Island as an international financial centre of excellence and innovation. Personally, I had planned to be in South Africa for the British & Irish Lions tour, but regrettably, it might not take place and as such we will look forward to catching up with friends there as and when we can.

Conclusion

No doubt, there are significant challenges for the world ahead but as Albert Einstein said: “in the midst of every crisis lies great opportunity”. And it is this opportunity that we all need to work together to identify and make the most of. We are confident that in 2021 the Isle of Man will continue to support financial services businesses help their clients, employees, and the wider society through these surreal times. We are all in this together.

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