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Bank of England warns: EU cannot replace the City

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Jon Cunliffe warned yesterday firms might opt for New York over Paris or Frankfurt (Source: Getty)

London's financial services firms would rather head across the Atlantic to New York than relocate across the Channel if forced to leave London, a Bank of England deputy governor said yesterday, as diplomatic figures suggest that Europe would shoot itself in the foot if it drives a hard bargain with the City over Brexit.

Jon Cunliffe, the Bank of England's deputy governor with responsibility for financial stability, said that firms might start looking to New York as a better place to do business post-Brexit.

He believes European hubs such as Frankfurt, Paris and Amsterdam do not pose serious competition to London's leading financial status.

"What we call London, I can't see that being replicated in the foreseeable future in one place in the European Union," Cunliffe told the House of Lords EU financial affairs committee yesterday.

He added: “The idea the ecosystem just transplants itself is highly unlikely.”

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Meanwhile, participants at a recent meeting of EU ambassadors and UK civil servants, hosted by the International Business and Diplomatic Exchange, noted businesses were more likely to shift to Shanghai or New York than a European counterpart. Participants noted that other EU states’ regulators would not be able to handle the flood of paperwork that would arise from financial firms seeking licenses as part of relocation plans.

"Financial services are one area where London has global excellence – with the EU ultimately benefitting from London being in such a position,” reveals a written report of the meeting, which was conducted under the Chatham House rule.

The document continued: "The danger lies in completely getting rid of London as a global centre of excellence – such a disaggregation would result in a fractured system."

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One participant added: “Moving financial services is as complex and risky as moving nuclear waste.”

The minutes continued: “The meeting noted that we have to take into consideration the outcome not only for the City of London but for Europe as a whole. It is important, and highly likely, that all financial institutions have well-advanced plans for location decisions going forward, and there is a need upfront for an organised, orderly transition. It is, however, unlikely that anywhere else can offer what London offers.”

Figures from the Financial Conduct Authority last month showed that more firms in EEA member states use passporting to access the UK market than the other way round.

Cunliffe's comments come at a time when many in the financial sector are concerned about where they stand in the Brexit negotiations.

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Reports emerged last week suggesting Prime Minister Theresa May was not willing to offer the industry any special treatment during the negotiations, while Brexit Minister David Davis has said there would be just one final deal, as opposed to mini-deals for each sector.

"One of the challenges which needs to be looked at is the size of financial services for Europe. London is a global centre for a financial services, clearly a number of international banks have options to invest elsewhere," Andrew Gray, global financial services Brexit leader at PwC, told City A.M. "But, at the end of the day, this is a question the politicians will need to agree on. "

However, he added: "The challenge that many banks in London face is their ability to access European markets and moving to New York doesn't in itself help that."

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