26 March 2021

Bloomberg: Seven Charts Show How Brexit Has Already Changed the City of London

A month after Britain voted to leave the European Union, Boris Johnson was asked whether he thought the finance industry would keep its rights to trade freely in the bloc. “I do, I do,” he told reporters. It was never that simple. 

Half a decade later, billions of dollars in assets and thousands of jobs have moved to the continent after the U.K. negotiated a bare-bones trade deal with the EU that largely sidelined finance, giving cities across the bloc the chance to lure firms in flux. While the two sides may be just about to ink an agreement to cooperate on financial regulation, neither expects the return of business as usual.

European cities like Amsterdam, Dublin, Frankfurt and Paris have each captured some of the shifts so far, although none has emerged as the clear winner yet. Some of these changes, like share trading volumes, happened overnight. In other areas, like jobs, it is more of a slow drift as firms and individuals try to work out which city in the evolving post-Brexit landscape suits them best. 

“We will have Frankfurt, Amsterdam, Paris and Dublin all in the mix to take some part of the financial system,” Mairead McGuinness, the bloc’s commissioner for financial services told journalists in March. “Markets will decide that and are probably best placed to do that.”

The situation remains fluid and the eventual outcome uncertain. The U.K. and EU are due to sign a memo of understanding at the end of March to cooperate on financial rules, which might smooth the path to greater access for British firms through so-called equivalence rulings in future. Some flows might change direction as the U.K. starts to set its own rules outside the single market, while areas key to London’s decades-long dominance as a financial center — including the clearing of trades — have proven sticky so far. 

“I don’t think you can create a financial center,” said Douglas Flint, chairman of U.K. fund manager Standard Life Aberdeen. “The EU’s challenge is one of where do you choose to locate such a center and how do you get other EU competing countries to cede whatever activities they host.”

But if the first three months of 2021 are any indication, Brexit could remake financial centers across Europe in the coming years.

Here’s what has happened so far:

Share Trading

European equity markets opened on Jan. 4 to a once-in-generation, “big bang” shift. Nearly all of the trading volume in shares of European companies that was handled in in the U.K. bolted to the EU. London soon lost its crown to Amsterdam as the continent’s top place to buy and sell shares. Trading in Swiss equities, which had been blocked while Britain was a member of the EU, resumed in February, helping to increase business on U.K. platforms. Britain is now hoping to boost equity markets by making it easier for companies to go public in London.

Swaps Trading

London has long been a global center for interest rate swaps trading, recently beating out New York and cities across Europe and Asia. But the City took a hit to its dominance after the EU blocked firms based inside its borders from trading certain benchmark contracts on London-based platforms. Seeing a rupture in markets between the EU and U.K.,  some banks routed business to Wall Street instead, where both jurisdictions allow trading, although London is still a dominant player when off-facility trading is included.

All charts and more available at Bloomberg

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