The City has a strange identity in political discourse. In one news cycle, a government can at once be criticised for protecting already flush bankers from regulatory harm while also pilloried for not doing enough to shield their competitiveness from heirs to London’s throne in Paris and Frankfurt. Now the pendulum has swung firmly to the latter, with Brexiteers in particular being asked what the future holds for UK financial services.
So far we have seen various announcements from investment banks pledging to review their footprint in London. This, combined with ongoing uncertainty over access to the Single Market, passporting rights for UK banks and asset managers, and the continued implementation of Capital Markets Union, without Lord Hill batting for us, leads people to question the future of London as a global financial centre.
The M&A market, in London and globally, is also slowing, with buyers, sellers and advisers waiting to see the impact of Brexit on pricing. So the contention goes that this period of uncertainty will beget further crises, until London proverbially shrinks to the size of Zurich.
This is overblown. It may be true that euro-focused clearing activity will decamp across the Channel, but many of the reasons that London holds so much global sway still hold, provided some kind of deal can be worked out on access to the EU.
Some Brexiteers have long suggested a bonfire of regulation to “set the City free”. Indeed, various long-suffering asset managers have joined them in this. However, London is successful in part because of access to European markets so City players are right to tread carefully on regulation. Access to Europe via passporting rights or private placement depends on regulatory equivalence so a return to “light-touch” is actually not in anyone’s interest. In the last few years we have even seen the British government challenge the EU because the UK wanted to go further on banking regulation.
Looking beyond the past fortnight’s volatility, there are many things that should give us pause before we write off the City. The M&A market has stopped for breath but we are still seeing activity. Buyers are looking for value and in London they can find it.
This is well evidenced by Addison’s Lee’s acquisition of executive car company Tristar – a bet on the continued success of our nation’s capital. As the continent’s largest car service operator, the combined group will be a European champion based in London. The addition of luxury specialist Tristar, advised by my firm, signals continued confidence in the UK business environment and indeed in M&A as the chosen catalyst for Addison Lee’s global expansion. UK financial services support the UK economy, the fifth largest in the world – the need for this to continue will hold true whatever deal is worked out with our EU partners.
We are also at the maximum point of uncertainty for UK financial services and their relationship to the Single Market – things will get better. Given the strength of the former and its value add to the latter, whether it is part of a broader push towards EEA status or a bespoke deal on passporting, we can be sure that trade will continue to ebb and flow.
Lastly, it is important to note how deep London’s expertise in, and appetite for, financial services runs. Offshore centres have attracted various activities away from London but ultimately people matter. This structural expertise has created a permanent ecosystem that will not simply wash away. Institutions will adjust, restructure and redeploy. But whatever form this takes, when it is complete London will still remain Europe’s financial centre. Markets will calm and activity will rise once this conclusion appears inevitable again.