Just heard a really interesting point of view from Professor Tim Congdon, CEO of International Monetary Research. He was putting a clearly positive spin from a City viewpoint on the outlook for Brexit. He began by talking about Medieval times of doing business and stated that most financial activity took part outside the cities they related to, as the cities were highly regulated and structured. Outside the cities, you could do whatever you wanted. The reason he started this way is that most European financial market activity developed in London in the 1950s from a Eurobond clearing and settlement perspective. The reason was that London was outside the European Union and therefore could be trusted more than any country inside the Union. This was before the UK joined the European Union in 1973, and part of the reason why London became a major market focal point not just for the UK but for the world.
If London was the preferred centre before we joined the Union, why would it be less preferred after we leave?
He talked about our biggest concerns now the Leave vote has been made: losing our passports and euro clearing moving to Frankfurt or somewhere else.
First, financial passporting. Oh-err. We’re going to lose our ability for British, American and other banks to centre in London and move all over Europe with a single license to thrill. What will happen?
Not much, according to Tim. American banks already move around Europe quite easily, as do Chinese and Japanese and other banks, as Europe wants to encourage global investment. In fact, the main people making the noise about staying in Europe because we might lose our licenses before the vote were the big American banks. Did anyone notice that these banks aren’t European? And yet, they’re based here and passporting around Europe. Does Europe want to piss of the big American banks and investors, and tell them to get lost? No way, get real.
And just as Brussels allows the big American banks to trade across Europe, are they going to block the British just because we’re no longer in the Union? America’s not in the Union; nor is China or Japan. So of course, there’s going to single market access post-Brexit, whether Brussels, Paris and Frankfurt like it or not.
That’s why the American banks, for all the sabre-rattling, are staying here:
July 18 2016, three weeks after the vote to Leave, and Wells Fargo invests £300 million to buy a new European headquarters in the heart of London’s financial district.
Would they seriously do this if they were worried about what Brussels could do to us and them?
Equally, most people like London and the way we think. That’s why they moved here before the Brexit vote, and why they’re moving here after it.
November 5 2016: Canadian mining company Endeavor is to relocate its headquarters from Paris to London, in a move that is likely to cheer a market concerned that firms would leave the UK after the Brexit vote. The company is understood to have made the decision because it favours the UK’s tax and business regime over the French system.
This is just a part of demonstrating that London is at the heart of global trade, and has built that position over centuries. Whether it’s in Europe or not, the idea that this trading centre with its international outlook would be blocked from European investing and trade is just ridiculous.
He then went on to talk about euro clearing.
The City is responsible for clearing around $570 billion every day in European derivatives. France and Germany have challenged this position twice in the high courts of Europe … and lost. Now they threaten to do the same again, but the position is the same: banks can clear and settle currencies and derivatives wherever they want. Just look at CHATS, the Clearing House Automated Transfer System for Hong Kong. CHATS settles billions of dollars of bank transactions a day in Hong Kong and US dollars, renminbi and, yes you’ve guessed it, euro. Can the ECB say that they can’t do that? The idea that a currency that wants to be a competitor to the dollar would start introducing laws to enforce that only banks that have clearing activities within its geographic reach is absurd and, for all the noise the ECB, Brussels, Merkel and co make, they can just lay off.
Finally, the City actually has a very good reason NOT to be in the Union. There are many rules in the European Union that are attacking banking and bankers, like bonus caps and structured products. By being out of that clique, the UK now has far more ability to be global in outlook, rather than introducing the protectionist policies the Eurocrats continually are pushing to protect their own nationalistic voter demands. In particular, the idea of a Financial Transaction Tax has been proven to be wrong in Sweden and yet the Eurocrats are pushing harder and harder to put this in play in their local interpretation of the global markets of trade. This would be severely detrimental to all, but particularly to London. That means, all in all, we are better off out. After all, can anyone actually show a true cost benefit analysis of how the City has benefited by being in?
These arguments are fairly compelling but you should also note that Professor Tim Congdon, CEO of International Monetary Research, is the former Economics spokesman for UKIP. Just saying …
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...