Passporting Defines London’s Future
Whether financial services firms decamp en masse from The City and Canary Wharf depends on if the UK can maintain its right to “passport,” or serve the entire EU financial market from a single location, after its EU departure.
If the British government manages to maintain its passporting rights, nothing should change dramatically. However, if it loses the right, many banks and other financial organizations will need to move staff to locations within the EU to maintain their current euro coverage.
Financial industry leadership quickly discussed the possibility on the heels of the UK government’s announcement of the Brexit referendum results.
“In the months ahead… we may need to make changes to our European legal entity structure and the location of some roles,” wrote Jamie Dimon, CEO of J.P. Morgan Chase, in a note to internal staff. “While these changes are not certain, we have to be prepared to comply with new laws as we serve our clients around the world. We will always do our best to take care of our people and do the right thing during times of change.”
There are many issues that the UK and EU will need to negotiate regarding the euro for trading and capital markets activities in euro-denominated assets, Andrew Dewing, managing executive officer and head of North American banking at Mizuho Americas, told Markets Media.
None of them will be decided quickly, added Jerry Rizzireri, president and CEO of Mizuho Securities USA.
“I think it is going to take a while for this to play out,” he said. “This is now a political process. We have 27 other countries that need to weigh in on this subject.”
No matter what the outcome of negotiations will be, Dewing remains bullish on London’s future within the global financial markets.
“The City is pretty good at self-preservation over the past 300 years,” he noted.
Rizzireri also sees the Brexit referendum’s initial shock to the global financial markets abating.
“Molson Coors issued $5.3 billion in investment-grade bonds this week,” he said. “Think about that. A couple of days after this historic event when the markets were in chaos, there were more than $30 billion of orders by investors.”
More on Brexit:
European firms could operate temporarily in the UK after Brexit while seeking full authorisation.
The total value of UK financial services exports remained stable in 2020.
Temporary equivalence was set to expire on June 30, 2022.
The Bank has new powers for reviewing CCPs following Brexit.
Restricting access to London CCPs would result in collateral damage for EU banks and end users.