Anthony Browne, CEO of the British Bankers’ Association, claimed that Britain’s biggest banks will relocate out of the UK in early 2017 and other smaller banks are making plans to leave before the end of this year. “Brexit means Brexit and we are all Brexiters now,” Browne said and highlighted that the public and political debate of today is taking us in the wrong direction.
Browne’s comments were published in an article for the Observer earlier this month, where he explored how the amount of cash UK banks are lending EU27 companies and governments is what is keeping Europe afloat financially. “The free trade in financial services that crosses the Channel each year, helping customers and boosting the economies in the UK and Europe, is worth more than £20 billion,” Browne said.
The Guardian discussed how passporting has enabled the EU’s integrated financial market to work out and allowed UK banks to sell their services to European customers – and vice versa. Alongside this, it meant that banks based in one EU country could set up a ranch in any other EU country without going through the regulatory system.
“Banking is probably more affected by Brexit than any other sector of the economy, both in the degree of impact and the scale of the implications. It is the UK’s biggest export industry by far and is more internationally mobile than most. But it also gets its rules and legal rights to serve its customers cross-border from the EU,” the article read.
Brexit will transform how banking is done because it changes whether or not banks have the legal right to provide their services in certain countries. Browne advised that some form of passporting must be retained or asked for once the UK has left the EU which would enable products and services to continue being applicable as they have done for many years.
“Other European leaders have said we have to give up passporting if we don’t want freedom of movement of people (even though there is no rational link between the two policies). Other voices in Paris have gone further, insisting that it must be made as hard as possible for banks based in the UK to serve customers in Europe,” Browne said.
He goes on to explain that other European cities are attempting to attract jobs from London and those from Frankfurt, Paris, Dublin and Madrid are going to London to pitch to bankers. However, he continues: “That is not the problem. The problem comes – as seems increasingly likely, judging by the rhetoric – when national governments try to use the EU exit negotiations to build walls across the Channel to split Europe’s integrated financial market in two, in order to force jobs from London.”
Browne makes it clear that it is the politicians who will ultimately decide what will happen in terms of free trade, but highlights that there is an economic irrationality in the way that these decisions are being made. “EU27 governments are trying to reduce trade barriers with the US and Canada, they want to put up trade barriers with their biggest trading partner, the UK.”
“The real challenge for business was not the day after the referendum – it will be the day after we leave the EU. For banks, there could be a cliff edge, with passporting rights suddenly disappearing and nothing to replace them.” Banks could lose regulatory approval overnight and it could take years for the British banking sector to rebuild itself, but also to Europe’s financial markets.
Hoping for the best but planning for the worst seems to be the only option for banks and international banks will have to work out which operations to keep and what to get rid of. “Their hands are quivering over the relocate button. Many smaller banks plan to start relocations before Christmas; bigger banks are expected to start in the first quarter of next year.”
Browne added: “London will survive as a global financial centre. Finance is inventive and will find a way through. But putting up barriers to the trade in financial services across the Channel will make us all worse off, not just in the UK but in mainland Europe.”