By Christopher Burke, CEO of Brickendon
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.
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. 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. 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. 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.
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 are a powerful deterrent for many businesses and entrepreneurs as well as the world’s top banks and their employees. 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. 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.
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. 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. The population of Luxembourg is almost 600,000 – over 400,000 people currently commute into the City of London everyday – 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. 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.
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. 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. 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.
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.
Financial Times, April 2017
Bloomberg, March 2017
Financial Times, March 2017
Financial Times, April 2017
FT.com, December 2016
Reuters, November 2016
FT.com, July 2016
Fortune, June 2016
City of London