Brexidous Gathers Pace
A Brexidous – movement of the bankers (with apologies to the late Bob Marley) is beginning to gather pace as banks based in the UK take steps to ensure the future of their EU trading activities after Brexit. A key aspect of EU financial business activities is the facility for a bank based in one location in the EU to trade across the (currently) 28-member bloc as if it were present in those countries. The facility is known as passporting and it is why many global banks set up facilities in London as it permitted them to trade across the whole EU. Once the UK leaves the EU on 29th March 2019, this facility is likely to end.
Just as foreign, non-EU banks chose London as a location to set up a sufficient presence to be entitled to use passporting, they and native financial institutions are actively seeking locations in other EU states to ensure that they will be able to continue to benefit from passporting when British-based banks lose it. Inevitably, this will mean slimming down UK operations with a consequent loss of UK jobs and tax revenues.
The recent request from Mrs May for a further two-year transitional period after the UK leaves the EU (effectively an extension of its membership) will do little to stop the flow. The UK government may wish to have a “deep and special” relationship with the EU after Brexit and it may seek to duplicate both the advantages of being a member of the single market and customs union, but these wishes are no longer in its gift after Brexit and could be vetoed by any of the remaining member states; the EU parliament and even some regional governments. Prudent financial institutions are not known for their love of gambling with their money (yours is quite another thing, of course).
It is reported to take around 18 months for a new EU satellite office to be granted the necessary permissions to act as a fully-licensed subsidiary in the EU, so the Brexidous tide will only get stronger. Bank of America became the most recent inclusion in Brexidous and is establishing a facility in Paris which will probably require 300 staff to relocate from London.
Given that EU-UK Brexit negotiations are still to settle the basic questions over citizen’s rights, the “divorce settlement” and the intractable question of the UK/Irish border which is a necessary step before a post Brexit trade deal can be discused, financiers will be left unimpressed by the mindless optimism of David Davis, Boris Johnson, Liam Fox and Theresa May – these guys are pragmatists.