Calm Words Won’t Stop Bankers Leaving London

An outbreak of common sense may come too late to stop bankers leaving London. The City is the European Union’s main capital market, and a big source of tax revenue for the United Kingdom. So both sides have good reason to negotiate a sensible post-Brexit agreement on financial services. For banks considering moving staff to the continent, though, what really matters is the timetable.

Prime Minister Theresa May’s statement that Britain will definitely leave Europe’s single market has narrowed the options for financial groups that use London as a base for their EU businesses. Unless the United Kingdom can negotiate some kind of continued access, they will have to shift operations – and staff – to new subsidiaries in other member states.

The outcome of that discussion will not be known for some time. If other EU negotiations are any guide, any agreement will be struck at the last possible moment – probably two years after Britain gives formal notice that it is leaving the bloc. Even then, dismantling parts of London’s financial architecture and reassembling it in Frankfurt or Paris will be a complex process.

That is why any deal is likely to include a lengthy transition process. At the World Economic Forum in Davos this week, UK finance minister Philip Hammond and his German counterpart Wolfgang Schaeuble agreed that without one, there could be a risk to financial stability.

London-based investment banks cannot take a deal for granted. The process of setting up new subsidiaries and applying for licences in other capitals could take several years, while securing office space, housing and schooling for employees and their families is also time-consuming. HSBC and UBS each said this week that about 1,000 London-based staff could move.

Banks are keen to delay the point at which staff physically relocate as long as possible. But they will only put their plans on hold if Britain can secure a transition agreement for its financial services industry up front. If that can’t be secured, the outcome of the subsequent negotiations will matter less – because bankers will already have started to ship out.

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