By Carolina Gonzalez and Jake Holland
Well before the word “Brexit” went from idea to reality, some of the world’s biggest banks began to loosen their ties with London, once one of the unquestioned leaders in finance. But now that Brexit is a reality, will the city of Shakespeare, Big Ben and, yes, global finance, also lose its coveted status in Europe?
Brexit, the messy divorce between the United Kingdom and the European Union, has cast a shadow of uncertainty on pretty much every industry since the 2016 referendum. Financial services is no exception, and many banks operating in London moved sections of their business elsewhere to mitigate risk — even before the UK formally began its uncoupling from the EU in January 2020.
As of January 2019, these shifts accounted for at least 800 million pounds in assets, or about 10% of the United Kingdom’s total banking sector assets, according to a report by Ernst & Young. The firm said this was a “conservative estimate” based on already announced plans; some banks have not yet revealed what they are going to do.
The Global Financial Centres Index, a semi-annual report compiled by think tanks in China and the United Kingdom, lists New York as the most competitive global financial center. London came in second, with Zurich, Frankfurt, Paris and Dublin each rising in the rankings because of Brexit, according to the September 2019 report.
New York extended its lead over London from the previous rankings cycle some six months earlier, and other European cities like Paris and Luxembourg made large gains. Analysts from the study warn that if Paris were to make similar gains and London were to make similar declines, the City of Light could eventually overtake the British capital.
For many years leading up to Brexit, large banks like Credit Suisse and JPMorgan Chase had set up offices in London to be able to conduct business in other EU countries relatively easily.
That’s because of something called passporting, which allows firms authorized in one EU country to operate freely in another EU country. Until Brexit, a bank with a passporting stamp in London was able to conduct business in, say, Athens or Lisbon without much additional work, said Phil Levy, chief economist for freight forwarder company Flexport.
“Financial services are huge for the UK, and the City of London, it’s what they do” Levy said. “This financial passporting idea meant [banks] could go set up offices in the City of London and serve all of the European Union very easily. You didn’t need to have headquarters also in Frankfurt, or in Paris, or in Dublin.”