Miles Celic, CEO of financial industry body The City UK provided evidence to the house of Lords European Union Select Committee yesterday on the potential impact of a “No deal Brexit” on the financial industry, warning of potentially drastic consequences both, for London as a financial centre and the UK.
Celic underlined three key requirements for the UK financial industry. First, the urgency to provide a sufficient transitional agreement, second any agreement should ensure mutual market access as close as possible to the current situation. Third, any agreement should provide opportunities to “ensure mutual access to talent” he stressed, highlighting the potentially damaging effect of restrictions on immigration on the city.
Highlighting the urgency of the issue, former Prudential director Celic stressed: “Most institutions will want to see significant progress before Christmas, and certainly in the first quarter, which will be a point of no return for most companies, as they need to apply for banking licences well in advance in order to relocate their business.”
“Talks could result in a pretty good free trade agreement, there is certainly ambition for that on both sides, but we can’t wait for that” he argued. “Companies cannot find themselves in March 2019 unable to serve their customers on the front end in Europe” he warned, whilst describing the pace of the talks as “disappointing.”
Consequently, he stressed the need for politicians to propose a transitional agreement which would offer companies further clarity in the medium term. “From our perspective it’s not much use getting to the end of the process and then being told that there is a terrific transitional agreement, any company that needs to make any decision in terms of operation or staff will have made that decision at that point.”
In order to relocate to another European licence, Banks in particular would have to apply for a Banking licence, a process which could take about a year. Countries a such as Ireland, which could be a potential favourite for relocations currently could approve at most 10 new organisations per year, he warned, stressing that most bigger lenders would have to make a decision soon in order to be ahead of their competitors.
In reference to a report published earlier by Oliver Wyman, Celic warned that a “no deal deal” on Brexit, in other words, trade relations according to WTO standards, could have dramatic effects on the UK, resulting in at least 75.000 job losses and, 18-25.00bn pounds of loss in economic activity.
A number of Wall Street giants, including Goldman Sachs, Morgan Stanley and JP Morgan have already made plans to expand their presence in continental Europe.
Nevertheless, Celic remains optimistic that London’s historic position as financial centre of Europe could be sustained: “What we have here in the UK is something extremely difficult to replicate” he argued, in reference to the economies of scale, quality of life and English as a common language.
Acccording to Celic, this applied also to London as a hub for clearing activities in Europe. “There is no economic rationale for moving clearing from London and very little regulatory rationale, there is certainly no appetite amongst any of the companies we dealt with. It would be economically inefficient given the cost associated with move” he argued.
A number of trading centres are aiming to capitalise on a shift away from the UK as a result of Brexit, Deutsche Boerse announced earlier this month that it will change its Euro clearing rules in a bid to attract UK business.
At the same time, he warned that if companies decided to relocate, Europe as a continent would suffer. “There will be greater economic inefficiency and more fragmentation” he warned, stressing that banks would be more inclined to shift their operations to New York or Asia rather than to another European country.
In response to his presentations, Celic was asked by LibDem Baroness Falkner whether a strong political declaration at the next Council of Europe (in mid December) would provide sufficient reassurance, something she said many members of the House of Lords expected.
Celic responded that “It would certainly not be ample, for many companies it would not be sufficient” he warned, adding that Mr Barnier did not have a clear mandate from the member states to discuss a transitional period. Instead, he highlighted that before Christmas, the industry expected at the very least a legally binding agreement that there would be a transitional period.