IBS Journal August 2017
13
Morgan Stanley have started to apply for licences to operate in Europe. Many of these moves may be pre-emptive measures, just in case the hard Brexit turns out to have a more damaging effect than expected. Whatever way you look at it, this side of the coin is way more foreboding.
Not playing nice
The process in the negotiations is no less arduous for big and small companies. Without clear details on what the goals and procedures are, planning for Brexit means preparing for the worse. The Financial Conduct Authority (FCA) has already warned that the lack of disclosure in this regard is doing nothing but hindering the stability of the fintech industry in London, and any industry by extension.
More pressingly, the FCA claims that it’s being excluded from Brexit talks with its European counterparts, according to the Financial Times. Similar tensions exist between the Bank of England’s Prudential Regulation Authority and the European Banking Authority.
According to Andrew Bailey, chief executive of the FCA, it is questionable whether the UK Parliament is ready for the amount of technical minutiae that it will have to scrutinise within the legislation in the short period of time of the negotiations.
Taking or creating opportunity?
Many London-based banks are being tempted by Germany’s financial hub, Frankfurt, which is calling on risk-taking to entice FIs to move. In fact, the city is already tweaking legislation with the purpose of accommodating these companies and banks.
“Banking regulation explicitly defines the risk bearers in such institutions, which provides an ideal starting point. The government of the State of Hessen anticipates that relevant legal changes may be possible following the German parliamentary elections this September, at the latest by autumn 2018.”
Germany is hinting at the idea of more flexible regulations regarding firing employees, which currently is much stricter outside of the UK. Through this, the country is hoping to appeal to risk takers, including international banks and other FIs.
For some lenders, the Frankfurt appeal seems to be hitting the right notes. Japanese banking giant Nomura said it is applying for a licence to operate in the German city as its EU base after Brexit, and so is Daiwa and Sumitomo Mitsui Financial Group. For now, the moves seem to be small scale, but the result of the negotiations may change that.
The Association for Financial Markets in Europe estimates that UK banks should spend $17 billion in the relocation processes following the rupture. Additionally, it seems that a lot of clearing houses will be forced by the EU to move their operations in euro to the continent. The Brexit referendum results, in which many UK companies outspokenly supported remain, is looking more and more convoluted as time passes. And for many, this is synonym for trouble.
Thomas Schäfer, minister of finance in the State of Hessen said in a statement, cited by the Financial Times, that the idea of a tailored accommodation of the financial services is seeing more support than a general, income-related solution. Previously, the city had planned to grant high earners exemptions from certain privileges of labour laws, such as strong job protection.
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