BRUSSELS • The European Union (EU) is preparing to move its European Banking Authority (EBA) from London following Britain's vote to leave the Union, EU officials said, setting up a race led by Paris and Frankfurt to host the regulator.
The move underlines how the City of London can expect to be frozen out of EU financial regulation - and possibly from Europe's capital markets - depending on the terms of Brexit.
While those who argued for Britain to leave the EU said the financial industry would thrive without EU shackles, some of its biggest employers including JPMorgan are scouring Europe to find new locations for their traders, bankers and financial licences.
The EBA, whose 159 London employees write and coordinate banking rules across the bloc, is expected to be relocated "soon", two EU officials told Reuters.
All EU agencies are based in member states. EBA chairman Andrea Enria said before last Thursday's referendum that the watchdog, founded in 2011 to improve regulation after the global financial crisis, would have to move if Britain chose to leave.
An EBA spokesman said on Sunday that the EU will have to decide on relocation and in the meantime, the agency would continue to operate in London.
Other European capitals are keen for a slice of Britain's financial services industry which contributed £190 billion (S$342.6 billion) to the economy in 2014, roughly 12 per cent of economic output.
Ireland said last Friday it had been in touch with firms considering relocating.
The industry employs 2.2 million people in Britain including around 90 per cent of US investment banks' European staff.
Paris and Frankfurt are the two largest financial centres on the continent and are therefore seen as the most likely new locations for the EBA.
Italy's financial capital Milan could also put itself forward.
"There are several reasons to believe Milan is the right place. Competition from Paris and Frankfurt is tough, but they may neutralise each other," Italy's former prime minister Enrico Letta told Reuters on Sunday.
However, he said that any change was unlikely to happen quickly as it could fall under the negotiation of Britain's EU exit.
The exit negotiations, expected to start once Prime Minister David Cameron has resigned, will be crucial for London's position as a leading financial centre.
The leading "Leave" campaigner and favourite to become the next prime minister, Mr Boris Johnson, said Britain would continue to have free trade "and access to the single market".