'17% of UK banking system at risk' in Brexit

Canary Wharf financial district in London. Financial firms in the UK will have to move businesses to countries inside the trading bloc after Britain leaves the EU in 2019, likely spelling the end of passporting, where companies seamlessly service the
Canary Wharf financial district in London. Financial firms in the UK will have to move businesses to countries inside the trading bloc after Britain leaves the EU in 2019, likely spelling the end of passporting, where companies seamlessly service the rest of the single market from their London hubs.PHOTO: REUTERS

LONDON • Global banks in London may have to relocate €1.8 trillion (S$2.7 trillion) of assets to the continent after Britain withdraws from the European Union, putting as many as 30,000 UK jobs at risk, according to Brussels-based research group Bruegel.

The assets potentially on the move represent 17 per cent of the UK banking system, Bruegel said in a report published yesterday.

Based on discussions with market participants, the researchers estimated that 35 per cent of wholesale banking activity in London can be attributed to dealings with customers inside the EU.

Financial companies will have to move that business to countries inside the trading bloc after the UK leaves the EU in 2019, likely spelling the end of passporting, where companies seamlessly service the rest of the single market from their London hubs.

Banks, and their clients, are most concerned about a "cliff edge" Brexit, whereby all access is cut off after two years.

To safeguard against that loss of access, banks are already in discussions with European regulators about setting up new bases inside the bloc and have said they will start moving people within weeks of the government triggering Brexit talks, expected next month.

  • WHAT'S AT STAKE

    $2.7 trillion

    Assets that global banks in London may have to relocate after the UK withdraws from the European Union.

    30,000

    UK jobs at risk.

"At a minimum, it is expected that the new EU27-based entities will need to have autonomous boards, full senior management teams, senior account managers and traders, even though much of the back-office might stay in London or elsewhere in the world," Bruegel researchers led by Mr Andre Sapir said in the report.

London-based companies will likely have to move about 10,000 employees into these new EU entities, Bruegel noted. An additional 18,000 to 20,000 people in associated professions, such as lawyers, consultants and accountants, may also have to relocate.

Bruegel's estimates are at the conservative end of the spectrum.

TheCityUK industry lobby group forecasts as many as 35,000 banking jobs could be relocated, rising to 70,000 when including associated financial services.

Britain's financial services industry generates as much as £205 billion (S$353 billion) of revenue annually and employs 1.1 million people, according to a report prepared on behalf of TheCityUK.

If Europe's financial markets - now centred in London - fragment across the 27 EU nations, then borrowing costs would likely increase as banks seek to offset the higher expenses, the study said.

That could cost households and companies within the EU an extra €6 billion to €12 billion annually, or up to 0.1 per cent of regional output, the Bruegel researchers estimated.

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A version of this article appeared in the print edition of The Straits Times on February 09, 2017, with the headline ''17% of UK banking system at risk' in Brexit'. Print Edition | Subscribe