After Brexit: A second Big Bang, or a City in retreat?

Edi Truell, David Wighton, Jenny Knott, Andrew Formica and Simon Gleeson at the FN Brexit Breakfast on July 1, 2016

Micha Theiner

The panel (from left): Edi Truell, moderator David Wighton, Jenny Knott, Andrew Formica and Simon Gleeson

Edi Truell, chairman of private equity firm Disruptive Capital Finance, saw an opportunity for a second Big Bang, sweeping away regulation to make finance profitable again. But Simon Gleeson, a financial markets law and regulation partner at Clifford Chance, said a reduction in regulation was highly unlikely. “When people talk about deregulation I always wonder what exactly do they have in mind? Solvency II, Mifid II, these are UK ideas that the UK has been pushing in Europe,” he said.

Andrew Formica, the chief executive of Henderson Global Investors, which has about 20% of its assets from European clients, said the UK regulator had often enthusiastically pushed ahead with “damaging” regulation that had been hatched on the continent.

The audience of more than 100 City professionals were also divided on impact. A straw poll found that about two-thirds believed London’s status would be seriously damaged by leaving the EU. Yet some optimism was found in the views of the high-profile delegates who spoke – and the one-third of delegates who thought the implications were manageable.

All agreed that London had to fight for its future. Formica said: “Irrefutably London is the centre for asset management globally. Today the challenge for the industry is to make sure that remains the case.”

Jenny Knott, chief executive for post-trade risk and information at Icap, said the City had “proved itself historically to be incredibly resilient and will continue to do so”. She said: “There may be challenger jurisdictions around, but I think where they will be very naive [is] about the effort it takes to have what we have here, which has taken several hundred years to evolve.”

As FN has reported, a split has opened up between the large foreign institutions, such as American banks, that want to ensure continued access to European customer via passporting, and British entrepreneurs, such as Truell, who founded buyout firm Duke Street Capital, who want to slash regulation and out-compete Paris and Frankfurt.

Truell said the City had been “slowly strangled” by the red tape that had been imposed on it from the continent. He called on the audience to look further afield.

“I would advise people to spend more time in the Far East than worrying about whether they can get passported into Latvia. We need to compete against Koreans and Singaporeans,” he said. “They are the people I want to do business with. They are beginning to deregulate as well.”

Gleeson, one of the City’s top lawyers on regulation, argued that firms hoping for passporting were going to find their hopes dashed.

He said: “Passporting has gone and it’s not coming back, the referendum told us that. The British electorate has much bigger problems with immigration than we thought they had.

“They associate freedom of movement with immigration – they’re not going to tolerate the acceptance of freedom of movement… as long as that remains the case, passporting is not coming back.”

He said that the substitute for passporting into Europe, a relationship based on the EU recognising the equivalence of the UK’s financial services sector, would prove to be “useless”. Gleeson said: “Recognition based on equivalence can disappear overnight. All Europe has to do is to is announce a new piece of legislation and the UK government says we’re not going to implement [it].

“I do not believe that it would be politically possible for the UK government to enter into a binding commitment that it would implement all new European financial legislation in the UK even though it had left Europe.”

And as a result, Gleeson said that finance professionals would inevitably choose to move to continental Europe. He said: “People will move, of course they will. They’ve just been told they’re not welcome in this country so it’s undoubtedly the case the City shrinks and finance in continental Europe grows… The extent is all to play for.”

He also was sceptical about the ability of a Brexit to kick-start a wave of deregulation. And he said there would be little political appetite to cut back on the regulation that UK financial services disagrees with, such as the banker’s bonus tax.” (A few hours after the briefing, Michael Gove launched a bid to be prime minister by blasting the City, speaking of “financial services that are not working in our interests or in the interests of the whole economy.”)

Formica held out the hope that at least some regulation would be put on hold – such as the UK’s asset management review, announced by the Financial Conduct Authority last November. He also said that he expected consolidation to increase in the asset management industry in 2017 as the uncertainty forces firms to look to cut their cost bases.

Knott said London should now focus on ensuring it remains a fintech leader. She said that the quality of London’s financial services infrastructure should still persuade firms not to flip to other capitals. She said: “It’s time for the City to pull together and be really optimistic about the opportunities [a Brexit] can provide.”

Fears were, however, raised about how the outcome of the vote would affect overseas nationals currently working in the City. Gleeson added: “These people [foreign workers in the City] have just been told that 52% of the country doesn’t like foreigners.

“Anyone who was looking to relocate to London is unquestionably cancelling their plans now. But people who are already here, they have just been told they are not welcome.”

Additional reporting by Mark Cobley

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