EU banks now seeking Brexit hubs in London

The number of UK financial services firms seeking to establish post-Brexit hubs in the European Union ground to a halt in the second half of last year, according to the latest research by EY.

Data over London landmarks, office buildings & executives

David Sapsted

22 January 2020

EY's Brexit tracker for July-December 2019 found that only one additional company of the 222 being monitored in the sector announced it was to establish a new office in the EU during the six months.EY said the number of financial firms saying they are considering or have confirmed relocating operations and/or staff to Europe has now stabilised at 92, representing 41% of the businesses being tracked.

Bovill study finds that 1,000+ financial entities applied to open offices in the UK

Meanwhile, a separate analysis of official UK data by regulatory consultancy Bovill found that more than 1,000 banks, asset managers, payments firms and insurers from the EU have applied to open offices in post-Brexit Britain so they can continue to serve UK clients.Under a Freedom of Information request, Bovill found that by last October, 1,441 EU-based firms had applied to the Financial Conduct Authority (FCA) for temporary permissions to operate in the UK after Brexit.Bovill said that more than 1,000 of these firms did not currently have an office in the UK, suggesting they intended to establish their first office after the UK’s departure from the EU on 31 January, according to a report in City AM.The firms applied to operate in the UK under the Temporary Permission Regime (TPR), which will come into force when current passporting permissions between the UK and EU become defunct, allowing companies from the bloc to operate in the UK while they seek full permission from the FCA.“These figures clearly show that many firms see the UK as Europe’s premier financial services hub,” said Michael Johnson, a consultant at Bovill, who described the figures as “a clear vote of confidence in the UK financial services sector and good news for the UK’s service economy overall”.Mr Johnson said the high proportion of firms without an existing UK branch that have applied for the TPR suggested there will be some movement of EU staff into the UK.Ed O’Bree, a Bovill partner, added, “In practical terms, these figures mean that European firms will be buying office space, hiring staff and engaging legal and professional advisers in the UK.“This augurs well for the UK economy, as the country will retain its reputation as a prime location for financial services in Europe.”

EY: most UK-based firms in the EU have implemented post-Brexit plans

As for large, UK-based firms establishing hubs in Europe, EY said that most had now implemented plans enabling them to continue operating within the bloc after Brexit. The tracker estimated that around 7,000 positions would be relocated from London to the continent and a further 2,400 jobs created and hired for locally at the new EU hubs. Frankfurt, Dublin, Paris and Luxembourg have been named as the main destinations.Omar Ali, UK financial services leader at EY, said, "Our data suggests that firms reached peak preparation in 2019 ahead of a potential no-deal Brexit."Firms have built out the infrastructure they need on the continent to ensure they will be able to serve clients once Brexit happens, be that with or without a deal. They are now waiting for clarity on the level of cross-border access and alignment – if indeed any."Although everyone has their parachute ready, the industry is still seeking the softest landing, with a strong future trading relationship that reduces the ripple effect on the economy."

Companies have voiced concerns about negative effects of Brexit

EY said that, since the 2016 referendum, 49 out of 222 companies being monitored had publicly voiced concerns over the negative impact Brexit was having, or would have, on their business.Specific factors cited included reduced profitability, asset outflows, deferred mergers and acquisitions, a slowdown in lending, and customer losses in markets outside of the UK.Mr Ali said, "There are more strategic decisions to make, including whether to operate multiple hubs across the Eurozone and in the UK or consolidate and restructure operations, and how large a part Europe will now play in global firms’ operating models, but it is hard to make those decisions while uncertainty still prevails."The fact remains that no one solid alternative is emerging to challenge London as the pre-eminent financial centre in Europe, but financial centres around the globe from New York to Singapore do represent a real threat to European centres. This should be front of mind for all those at the negotiating table."