How will the City work with the EU?
Can we be involved in financial supervision if we are outside the Eurozone?
Why will businesses stay or remain?
The City of London
Financial services generate more than £65 billion in taxes and employ nearly 1.5 million people. We are a service economy and these have become central to Mr. Cameron’s negotiations.
They are dominated by “The City” which is the financial capital of Europe – or even of the world (more than 40% of the world’s foreign exchange goes through London). All the European governments raise money there, get advice, insure their assets and trade their currencies. It is very profitable which is why France and Germany want to move it to their cities
The biggest foreign banks use London as their base for Europe because it has all the technology and skills and experience to do their business worldwide and they can hire people from anywhere in the world who want to live in such a nice city where they understand the language.
Other businesses say that they would be more profitable if they could be freed from the red tape and restrictions of the EU and anyway London is such an international city that they can raise the money and do their work without depending on the EU. There might be some uncertainty at the beginning but they would eventually benefit greatly from an Exit.
The EU could insist that financial businesses working in the EU have to set up their main offices in the EU and obey all the regulations and move towards a single capital market. Most of them would obey but it is unlikely that all the support services and advisers would leave London to work in a small city with a foreign language.
Governments should not want to go through the major disruptions as the banks are reorganised.
We have done a lot to help write the EU laws and regulations. If we leave then there will be laws that affect our business but we will have had no influence in drafting them.
Everyone agrees that there is a risk that the EU is focussed on a “one size fits all” approach to financial regulation. The Alternative Investment Fund Managers Directive (AIFMD) is seen as an example of the EU getting involved in something it does not understand and that is irrelevant to our sophisticated financial markets.
Bankers are bracing themselves for a difficult two months up to the Referendum and in the event of a vote for exit both sides agree that financial markets will remain unsettled. The Governor of the Bank of England implied that this will last some time and that the Bank is going to have to put in place special measures to deal with excessive movements of money during this period.
The EU has been working towards having a network of regulatory bodies across Europe who can supervise financial organisations and manage any crises. This will also give bank account holders some reassurance that their savings are at least better protected if there is a banking failure.
Bank of America, Goldman Sachs, JPMorgan and Morgan Stanley are all donating money to the group campaigning to keep Britain in the EU. A major question is the effect that the Eurozone countries will have on the banking environment in the EU.
It is noticeable that other trade agreements between the EU and other countries have either not included financial services or have restricted access and the ability to use their own countries as a base for doing business (e.g. Switzerland).
The Stock Market
This is not a website from which to get stock market advice or predictions but we would note the following:
- Both sides seem to agree that the uncertainty of the Referendum will cause the exchange rate of the £ to move down.
- A lower £ is good for exporters and bad for importers
- Nearly every UK business will be affected in some way by the outcome and particularly by the EU agreement if we Exit
- The forecasts of doom by bankers etc. were proved completely wrong when we joined the EU
The political disruption in the UK is possibly going to have as great an effect on the Stock Market in the shorter term as the results of the Referendum.
The City can only hire the best people if there is free movement across the EU borders
If we leave then we will lose people and services to other financial centres
We should be able to influence the decisions of the EU
It would be legally very difficult to unravel some of the financial laws that protect investors and depositors
The EU still needs our expertise and support services, which will be difficult to move to another city.
Our own rules and regulations will be more relevant for a sector that has a long history of working with the world
The AIFMD is just another example of the EU hampering our financial markets
People like working in a city with a language they understand and a way of life that is very attractive