More than 440 financial service providers have moved part of their business or staff to the EU in response to Brexit. In value terms, the banks alone have moved more than £ 900 billion (more than € 1000 billion) from the UK to the European Union. That’s roughly 10 percent of the UK’s banking system, says London’s think tank New Financial in a new report.
The relocations that financial institutions have set in motion are more drastic than previously predicted, the researchers write. Moreover, they think that their figures underestimate the actual effect. Although London will remain the most important financial centre in Europe for the time being, the City is losing its influence as a larger share of trade falls under European supervision.
Dublin has been the winner in the competition between European cities. The Irish capital accounts for a quarter of the relocations. Paris is a fifth. Luxembourg, Frankfurt and Amsterdam have also strengthened their position. In Amsterdam, 48 institutions are involved, including the US asset manager BlackRock and the Royal Bank of Scotland.
This choice for a city in many cases has to do with the existing expertise there. Fund managers often chose Dublin, banks preferred Frankfurt and of the institutions that chose Amsterdam, two thirds deal with stock exchange trading. The fact that Amsterdam has attracted fewer banks may also have something to do with the strict bonus scheme in the Netherlands.
It is striking that many financial institutions do not choose a single head office, but spread their activities. For example, the Bank of Montreal has located its investment bank in Dublin and its fund management in Amsterdam. BlackRock has chosen Amsterdam as a European hub, but has also expanded in Paris and Budapest.
This is how Brexit has caused fragmentation. This could make European competition more difficult with other financial centres, such as New York. ” This redistribution of activities in the EU sets the clock back twenty years, ” the researchers say.
All these relocations have an impact on at least 7,400 jobs. This figure is based on information from 70 institutions. Large investment banks quickly need 400 to 500 employees in a new branch city. Small fund managers may be a handful of employees. The relocation of the Royal Bank of Scotland to Amsterdam involves 150 jobs.
Researchers Eivind Friis Hamre and William Wright believe that the effect on employment will increase in the coming years. So far, Covid-19 has slowed down the process. Furthermore, local supervisors in the EU have been flexible by allowing financial companies to set up a legal structure with a minimum of staff. But the EU can take a tougher line. “It is also important to create new jobs in the EU that would otherwise have been created in the UK.”
The financial sector was not included in the brexit trade deal that was concluded at the end of December. This could lead to more activity leaking from the UK to the EU. Although there are also European institutions that are opening offices in the UK, the outcome of the investigation is ‘sobering’ for the British, according to New Financial.