Peterson Institute for International Economics
After orderly Brexit, a new European financial landscape starts to emerge
Nicolas Véron

Brexit implications for the European financial industry

This article, released by the Peterson Institute for International Economics, analyzes the impact of the Brexit in the European financial sector, specifically in the future competitive position of the City of London and the European Union, that will be affected by the EU decision to reduce its dependence on the City in favor of cities like Frankfurt, Luxemburg, Amsterdam, Dublin or Paris. According to the article “the EU success in terms of financial services competitiveness and stability will depend on further market integration”, which in other words means to complete the European Banking and Capital Market Union.

  • Brexit in the financial services have run smoothly. Contrary to the political drama that has been leading part of the negotiations between the United Kingdom (UK) and the EU the article remarks that “Brexit was carried out in an orderly manner in the financial sector” thanks to the hard work by financial firms from both sides of the Channel and to the positive cooperation between the technical levels of the Bank of England and the European Central Bank (ECB).
  • Brexit implications: the United Kingdom is now a “third country” to the EU, an offshore financial center, meaning that “UK-registered financial firms have lost the right, or “passport,” to offer their services seamlessly anywhere in the EU single market”, they will have the same access conditions than other financial companies from Japan, Singapore, or the United States. This situation support the following article statement: “The one near certainty is that London’s position in the European financial sector will be less than it used to be”.
  • The importance of the “equivalence” status: This status would allow to provide ”direct service provision by firms under a regulatory framework deemed “equivalent” to that in the European Union”, however according to the article “ the European commission is unlikely to grant equivalence status to most UK financial market segments any time soon”.
  • Unpromising outlook for the City of London: According to the article this negative view for the City of London has to do also with other aspects such as “the Commission’s inclination to reduce EU dependence on the City of London” as “no comparable dependence on an offshore financial center has existed anywhere in recent financial history”. Furthermore this reduction of overdependence from a third party would be driven by the intention to reduce financial stability risk at the EU.
  • Opportunity for the European financial sector to gain relevance and to attract part of the business returning from the City: According to the article is not clear how much financial activity will be gained by the EU as a consequence of Brexit. There are several well positioned cities to attract financial activity such as Amsterdam, Dublin, Frankfurt, Luxembourg, and Paris, all of them European leaders in different financial services. However, according to the article, “the EU success in terms of financial services competitiveness and stability will depend on further market integration”, meaning a completion of the Capital Market and Banking Union, both process in a pace that “remains hard to predict”.

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