The Financial Conduct Authority has taken its boldest step yet into the debate about banks' Brexit contingency plans.
In a letter to lenders the City watchdog warned that it will not accept “steps being taken which could expose clients or markets to unacceptable risks.” Specifically, the FCA warns that they will intervene if they suspect plans to move non-EU clients out of the UK could result in exposure to increased costs. It said banks should “make the minimum necessary changes required.”
Plans to move personnel and capital out of the UK post-Brexit are advanced, though the cumulative impact is expected to be considerably smaller than first feared. Moving financial services from one jurisdiction to another is, according to an old Square Mile observation, like moving nuclear waste: expensive, risky and not attempted unless absolutely necessary.
An already complex operation could be further complicated by the FCA's insistence that it won't sanction moves if it isn't sufficiently satisfied that the associated risks have been defused.
Figures released this morning by the City of London Corporation highlight the central importance of the finance sector to the UK economy and, in the words of the Corporation's policy chair, Catherine McGuinness, the requirement to protect this golden-egg laying goose.
The Corporation has worked with PwC to produce its annual estimate of the financial services sector's tax contribution, which they say hit a record £75bn in the year to 31 March – up 4 per cent on the previous year and equating to nearly 11 per cent of all UK tax receipts. Corporation tax receipts jumped to £14bn, up from £11.6bn in 2016-17 thanks in large part to the bank corporation tax surcharge.
The largest contribution, £32.9bn, came from employment taxes – accounting for 11.5 per cent of UK employment tax receipts.
The Treasury will breath a sigh of relief that the claim of 250,000 City job losses made by some before the referendum appears wide of the mark (by about 240,000) but they should not be complacent. As McGuinness says, “it is more important than ever that the UK remains competitive to safeguard the sector's employment and tax base.”
Fortunately, Philip Hammond has said he is prepared to pull fiscal levers to keep the UK attractive post-Brexit.