Financial News canvassed views from across the investment banking, trading, fintech and fund management industries on what areas should be prioritised in Brexit negotiations and how the UK should go about achieving them.
Leave campaigners may have wanted a bonfire of Brussels regulation, but financial services executives are almost unanimous in their opinion that the ability to interact with Europe and access its workforce is far more important than the opportunity to scrap rules.
Alex McDonald, chief executive of the Wholesale Markets Brokers’ Association, an interdealer broking trade body, said: “The City is pretty aligned when it comes to the main issues. Passporting of permissions, of capital and transactions between the two regions, and the work permit issue. They need access to labour.
“If you speak to the heads of largest organisations, it’s all about talent and the people. As for the balance between passporting and deregulation, it is very one-sided on passporting.”
Fund managers were particularly clear on their priorities.
Martin Gilbert, chief executive of Aberdeen Asset Management, said: “The only thing we want is the continuation of passporting of services. Just as we manage some of our Luxembourg-domiciled funds out of Singapore, and some out of Philadelphia, we manage some out of London. That needs to continue; that’s the only thing we really want.”
Gilbert continued: “It’s not so much the passporting of fund sales into Europe, it’s the passporting of services out of Europe and into the UK in order to be able to manage EU-domiciled funds. We think it’s pretty low-risk that the EU wouldn’t allow this; that would also kill US managers being able to manage Luxembourg funds, which they do at the moment, for example.”
The City’s interest in Brexit negotiations will depend “very much” on whether the UK government negotiates to stay within the European Economic Area, according to John Adams, partner in the UK investment funds practice at Shearman & Sterling.
Adams said: “Assuming we don’t remain in the EEA, then there are a whole lot of passports that UK fund managers would like to have under the Markets in Financial Instruments Directive and under the Alternative Investment Fund Managers Directive. They would also like to talk about access under Ucits [the EU’s popular mutual funds regulation].”
Access to the single market was also cited as crucial by investment bankers.
Spencer Lake, chairman of the International Capital Markets Association and vice-chairman of global banking and markets at HSBC, agreed, saying: “Passporting is key,” while a London-based government relations head at a major international investment bank said: “I think all of the industry right now would do well to put access to the single market in some form or other high up their list. At this point, we should talk about single market access, whether it’s EEA or whatever it is, as a starting point. If our starting point is much less ambitious, well then, where do you go? It’s legitimate for the industry to say we want access to the single market and then politicians are meant to work it out.”
Contest for talent
Others cited freedom of movement of labour as the most important issue.
Michaël De Lathauwer, co-chief executive at pension-fund manager Cardano, said the government’s focus should be mainly on access to talent. “There was a chill that went down my spine when [the Brexit vote] happened. I can imagine, if a Bulgarian who’s worked here for two and half years in our LDI team who is fantastic and we wouldn’t want to lose, if he gets an offer from Allianz in Munich, would he rather take that or be under uncertainty at Cardano in London? I don’t know, I hope we don’t have to answer it.
“I would say that at least the people who have the technical capabilities, who actually are in jobs, Europeans here in London, should be able to maintain [their work in the UK]. And secondly the ability to continue to attract people from European countries for very specific roles so that… if we see a student who’s studying at the LSE or whatever and we want to attract that person, we can do that type of thing.”
Mike Laven, the chief executive of foreign exchange transfer start-up Currency Cloud, also said people were the most important issue for his firm and added that 20% of his firm’s workers are non-UK EU citizens. “As a tech business you are dependent on the quality of people. If you can get good people then you can meet your other obligations,” he said.
Then again, not everyone feels so concerned. Some are less worried that labour movement might be restricted.
Slendebroek of Jupiter, who is a Dutch national without a UK passport who lives and works in London, said: “To be honest, I don’t really see the immigration issue as a problem. We have EU nationals without British passports, of course, like myself, but we also employ talented people from all over the world. I am convinced that in all foreseeable futures we will continue to be able to attract these individuals.”
Aiming high and slow
Will the UK have a strong enough negotiating position to secure deals such as access to the single market and free movement of people?
Getting a deal on passporting is “key, according to Sean Tuffy, head of regulatory intelligence at custody bank Brown Brothers Harriman. But commenting on the UK’s ability to secure such deals he said: “Yes, the UK has a lot of cards, but not as many as it might think. To overplay these cards would be a mistake. I’m pessimistic. Unless there is a change of attitude, it is hard to see how this all ends well.”
The investment bank government relations head was pessimistic on the industry’s prospects on getting access to the single market as well as being able to escape unpopular regulation. “Would we like a world where we didn’t have the bonus cap and didn’t have bank structure regulation – but also had access to the world’s largest single market? Well, yes. Are we dreaming if we think that? The answer’s also yes.”
But Patric Johnson, the chief executive of City stockbroker Panmure Gordon, who highlighted passporting as a key issue, said: “I can’t see from either side that it makes sense to exclude London from a pan-European financial services community. It could be potentially detrimental to the European and UK financial services.”
Lisa Rabbe, the former Emea head of public policy at Credit Suisse and now an independent government relations and public policy strategist, said human capital was the main issue and added: “The worst case scenario would be some kind of acrimonious UK/EU negotiations that yielded some kind of tit for tat restrictions on EU and UK nationals being able to work in each other’s jurisdictions. I think that’s unlikely because I think both sides have so much to lose from that and I think that’s very clear to both sides.”
On the whole, McDonald of WMBA said he believed the UK’s negotiating position was “pretty strong”.
“The EU needs the UK as much as the UK needs the EU. We are a net exporter of financial services, so arguably we are dependent, but being dependent it’s a co-dependency,” he said, adding that European companies rely on the UK’s trading venues.
And commenting on fund managers’ ability to secure passports, Adams of Shearman & Sterling pointed to the UK’s “enormous” investor base as a reason it will be “very important that continental funds have access to the UK market”. He said he was “optimistic that things will get resolved” but warned: “This will not a be a five or 10-minute job; this will take time to do properly.”
Taking time over negotiations in order to ensure a good end result was something various executives said would be sensible.
Laven of Currency Cloud said: “I think the right thing is to go slow. I don’t think a quick deal – just closing for the purpose of stopping the uncertainty – is a good strategy. We are prepared to wait for a very long period of uncertainty. An early close would not be the right deal.”
McDonald of WMBA agreed. “A quick solution with low probability of remaining in the single market does not help the City,” he said.
Even those who would prefer a swift end to the uncertainty acknowledged the need to take time in order to get a good end result. Johnson of Panmure Gordon said: “The City demands quick decisions and hates ambiguity, however it’s worth waiting to get the right outcome.”
In the meantime, “preparation is extremely important”, according to James Hughes, an account director at Brussels lobbying firm Cicero Group. He said: “At the moment there is a big assessment going on of what actually depends on access to the single market. While some activity may be governed by European regulation it might not count as cross-border activity. That is being assessed to work out what really does need to be preserved. That will inform negotiations.
“Businesses all across Europe benefit from there being a thriving financial centre, so I don’t think people want to disrupt that on principle. But at the same time it will make some countries very uncomfortable to know that so much activity is happening outside Europe. They will be very uncomfortable if they are hugely exposed to a jurisdiction they have little influence over.”
Christopher Ratcliffe, senior associate in the financial services regulatory team at law firm Taylor Wessing, said financial institutions could make their feelings known through public affairs activity, lobbying and involvement in trade bodies. “Policy makers need to hear several angles. If your business and key staff are likely to be significantly impacted by the terms of exit, point that out. We recommend lobbying and taking all opportunities offered to petition for access if this is important to your business model.”
• THE KEY QUESTIONS FOR EACH SECTOR:
1) Will UK fund managers be able to get third-party passports under Mifid and AIFMD?
2) Could some bespoke UK deal be struck on Ucits?
3) Will firms still be able to hire EU nationals as easily, and will they want to come here?
Trading and technology 1) What will happen to the implementation of post-crisis market structure regulation such as Emir, Mifid II and CSDR?
2) Will London-based firms be allowed to clear Euro-denominated assets?
3) If the UK ended up outside of the EEA, would its regulation be deemed equivalent?
1) Will the UK negotiate passporting rights for banks to continue selling services in the EU from a UK subsidiary?
2) Will the UK remain in line with EU financial regulation such as the bankers bonus cap?
3) What might the UK government be prepared to give up to ensure freedom of movement?