Apart from house-builders, UK banks have been the worst hit in the FTSE 100 over the past few days of trading. Reports over the weekend suggested the outline of a plan to limit the damage, to defend London’s status as an international financial centre.
There seem to be broadly three elements: maintain the position that UK financial services should retain passporting rights; seek to limit the disruption in the very short term, for example by defending access to the Single Market while transitional arrangements are agreed; make sure financial services are given priority in any bilateral trade agreement(s) and emphasise global rules to diminish any differences.
The scale of the work to be done (and the extent to which the result took the industry by surprise) means many will have to get used to working outside their normal comfort zone. The industry will need to simultaneously manage a reputational challenge (convincing all kinds of stakeholders that the UK is still open for business) and a public affairs challenge (convincing Eurozone governments of the case for a deal which maintains market access).
There are plenty of reasons for concern, not least the delusion among some European policy-makers that they might be the principal beneficiaries of any decline in London (rather than losing out to more competitive centres outside the EU altogether).
On the other hand, the UK government is going to be supportive and keen to do what it can to help. And as heads cool, Eurozone governments will have all kinds of reasons to avoid exacerbating the Brexit shock (not raising the quality-adjusted cost of financial intermediation for industry, for example). What does a productive way forward look like?
I think there are four key priorities that the industry needs to move on urgently between now and September (there are lots of milestones, but a new government which might trigger Article 50 is key).
First, quantification of the impacts in other EU member states of a bad deal, relative to various potential relatively good deals. Eurozone leaders need to be aware of the consequences for their own fragile economies and politics of an attempt to punish the UK.
Second, mobilisation of stakeholders (principally corporate customers) in other member states to communicate with their governments about the impacts of a bad deal. London cannot simply talk its own book.
Third, development of a set of policies that a UK government which wants to accentuate London’s other advantages could implement (for example, changes to policy on tax or skilled migration). Ministers will want to do what they can to make up for the uncertainty over the UK’s relationship with the EU, so it is worth putting the best options possible in front of them.
Finally, lead the debate in constructive ways to limit the risk of contagion which is motivating the desire among Eurozone leaders for punitive action. Or describe why those concerns might be exaggerated.
I know Friday felt like a very dark day for many in London financial services. But the result was clear, and it was not a mandate for anything but Leave. The shape of the UK’s relationships with the EU and the wider world is still up for grabs.