15 December 2016

CSFI: Getting Brussels Right: “Best Practice” for City firms in a post-referendum EU

This paper explores how City firms should engage with the EU institutions if they want to have the greatest impact in a post-referendum world. It takes Malcolm Levitt's paper from 6 years ago as a starting point, but it looks at how the context has altered since the UK referendum.

[...] 2. Post-Referendum: How has the context changed?

Since June 2016, it has become clear that the operating environment for the City in Brussels will be characterised by two phases: - the pre-deal (negotiation) phase; and the post-deal (Brexit) phase.

These two phases call for different ways of working and a certain scale of effort. As one senior banking official put it, "the pre-leave period is vital. Now is the time to put every shoulder to the wheel. We need to maximise our interests in order to set the baseline for negotiations. We need to be all-in, influencing the UK government and Brussels. Working as hard as we can before we get kicked out."

We will come to the question of how this work should be carried out in the following chapters, but first we need to examine how the operating environment will change given the referendum result. We can summarise these changes in three categories:

• A reduction in the number and seniority of Brits in Brussels (traditionally, the City has relied on British MEPs and, to a lesser extent, Brits in the Council and Commission or elsewhere in Brussels, to exert influence on the EU);

• A reduced role for the UK government in European-level discussions (the UK government has been an important lever of influence for City firms wanting to influence or block EU decisions on financial services); and

• Heightened competitiveness, with EU countries looking for any advantages from the post-referendum fall-out.

Whilst it is still too early to draw definitive conclusions on any of these points, it is already possible to detect trends and to make predictions for how the operating environment will be different post-Brexit - and even once Article 50 is invoked.

A reduction in the number and seniority of Brits in Brussels

The UK has never been as heavily represented in Brussels as most of the of the other major EU member states. Indeed, the European Commission’s own figures show that, as of February 2016 (i.e. before the referendum), British nationals constituted just 3.8% of EU staff, compared to 10.2% for France, 17.8% for Belgium (which is understandably over-represented) and 4.8% for Poland. That said, there are plenty of other Brits in Brussels – lawyers, lobbyists, accountants, management consultants – all of whom have more than a passing interest in how the next few years pan out. 

Since the UK referendum on June 23, those Brits, whether within the European institutions or observers, have been forced to consider the impact of the referendum result and Brexit on their careers and on their influence in Brussels. A small minority says that little has changed and that it is too early to say if anything will, but the majority agrees that the access and influence that Brits enjoy in Brussels is already diminishing.

For the purpose of this paper, we can divide Brits with influence in Brussels into three broad categories:

• those working in the institutions (Commission and Council officials, MEPs and those supporting MEPs);

• those working in one of the vast array of organisations that are formally independent of the EU institutions and the UK government, but which are trying in one way or another to influence them; and

• those working in the UK Permanent Representation in Brussels. [...]

Key recommendations

Having taken Malcolm's conclusions as a base, we put forward some recommendations for firms to be thinking about as they engage Brussels in the pre and post-Brexit phases of the negotiations:

1. Be present in Brussels: The likes of the BBA, UKREP, and City firms' representations in Brussels must grow and must grow quickly, before the playing field changes completely. Whether the aim is to gather intelligence or to protect one's interests, these things are best done on the ground. This will provide the flexibility to be pro-active, and to build deeper relationships which are not just based on solving ad hoc problems as they arise.

2. Use the pre-Brexit period to maximum effect: “Now is the time to put every shoulder to the wheel.” It is important to protect and nurture the levers of influence that the City still has. In particular, the City and government must support British MEPs to maintain their positions for as long as possible, must encourage UKREP officials to stay in place, must build networks with nonBrits in Brussels and elsewhere which can survive Brexit, and must build financial expertise amongst EU staff while the UK is still a member state. Key recommendations

3. Educate, educate, educate: City firms must focus on educating their new UK Ministers, so that the government enters negotiations with its eyes wide open. The City must also actively share expertise with the burgeoning Civil Service involved in EU negotiations. Of course, how effective this is will depend in large part on how open UK Ministers and the Civil Service are to the City. They have every reason to want to listen and learn, but the arguments need to be presented in a measured and objective fashion, based on fact and linked to the impact on the real economy. The City must also use its expertise to educate non-British MEPs and Commission officials, not just on areas of immediate concern, but on the financial services sector more generally. They should stay engaged with the Capital Markets Union initiative, and show willing to contribute to the debate despite Lord Hill's absence.

4. Be humble and bring the audience with you: When you are the biggest fish in the pond and have special technical expertise and resources, there is a danger that you will be perceived of as arrogant. In a post-referendum or (postBrexit) world, remaining EU members will have less patience with this - and less obligation to put up with it. Whilst most in Brussels recognise that UK expertise will still be needed (perhaps more than ever) post-Brexit, they will not accept it at any cost, and it will be incumbent upon City firms to explain why they should still have a role. Anyone engaging with Brussels needs to be careful that characterisations of the City as 'global' do not appear to undermine the European project.

5. Take Brussels and the “European project” seriously: Whether they are pro or anti EU, understanding and respecting what the 27 other member states are trying to achieve and the challenges they face will make City firms more effective in getting their points across. As one former European Commission official said: “The City must be the body that shows itself to be firmly in favour of the EU succeeding. There needs to be a fundamental change in attitude along these lines, not a competition between the two.” This may be harder to do from the outside when one's country has made a democratic choice to leave, but it is all the more important that the City should be intelligently supportive.

6. Engage with the other EU 27 - build alliances: The City will need to call on its North European, economically liberal friends to represent its pro-market, pro-innovation interests in Brussels - and will need to do so with a concerted effort that has not hitherto been seen. The Swedes and the Danes will be key to protecting many of the interests the City holds so dear when the UK is not in the room. Investing in those relationships for the long-term will require considerable time and effort. It may involve a bigger representation; it will certainly entail a permanent presence or regular visits to capital cities and better utilisation of subsidiaries in other European capitals.

7. Recruit the necessary people and value EU expertise: A surprising number of those interviewed in 2016 suggested that City firms would not only need more people to handle the EU, but may need to recruit more nationals from the remaining EU member states to help them maintain their influence in Brussels and to build relations with other national capitals. That also means that those existing employees with special knowledge of the EU institutions and networks in Brussels should be nurtured and encouraged to share that expertise with others. At a time when many in the City feel they face crisis after crisis, the recommendations above may seem like an unwelcome distraction from the business of damage limitation and/or of maximising opportunities, in which City firms are currently engaged. It is natural that most energy should be focussed on prioritising arguments to be presented to the UK government and the EU; but it may pay dividends in the longer run to take a moment to focus on how those arguments can best be presented - and on how the context in which they will be heard has changed. 

Full report

 

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