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Hard Brexit threatens global financial system, City chiefs tell MPs Hard Brexit threatens global financial system, City chiefs tell MPs
(about 4 hours later)
Brexit poses a risk to the global financial system and could spark more than 230,000 job losses in the financial sector, senior City figures have warned MPs as they called for clarity on the UK’s future relationship with the EU. Brexit poses a risk to the global financial system and could spark more than 230,000 job losses, senior City figures have told MPs as they called for clarity on the UK’s future relationship with the EU.
Xavier Rolet, chief executive of the London Stock Exchange (LSE), warned that Brexit could have an impact on “unimaginably large” contracts which are cleared through the City and which might need to be transferred to the 27 remaining EU member states. Xavier Rolet, chief executive of the London Stock Exchange, said Brexit could have an impact on “unimaginably large” contracts which are cleared through the City and which might need to be transferred to the 27 remaining EU member states or other financial centres.
The HSBC chairman, Douglas Flint, also giving evidence to the Treasury select committee, said that while banks did not want to move activities outside London they had to plan for the worst. As Rolet called for a five-year transition period for the UK to exit the EU, MPs on the Treasury select committee were told the triggering of article 50 – the formal process initiating departure from the EU – in March could prompt banks to implement contingency plans to shift business out of London.
They called for clarity from Theresa May on the UK’s approach to the EU ahead of the start of formal exit negotiations. The prime minister has said that article 50 – the formal process of leaving the EU – will be triggered in March, which has prompted warnings that banks will implement plans to let them keep operating inside the EU. Anthony Browne, chief executive of the British Bankers’ Association, has warned that banks were quivering over the relocate button. “The ecosystem in London is a bit like a Jenga tower: you don’t know if you pull one small piece out whether nothing happens or whether it has a more dramatic impact,” said Douglas Flint, chairman of Britain’s biggest bank, HSBC.
Flint said that some US banks in London were able to transact with big European companies because they used a “passport” from their operations in the UK and would need to find a way to keep doing this. He estimated that tens of thousands of jobs in London were at firms with such operations. Ahead of the 23 June referendum HSBC said it could move 1,000 roles to Paris and Flint told MPs the bank was ready to take “pre-emptive action” before Brexit was completed. He pointed out that HSBC also had operations in Ireland, the Netherlands and Luxembourg.
Rolet told MPs that consultants EY had conducted research estimating 232,000 roles could be lost, not just in the City, if clearing of euro denominated contracts was prised away. This research has also been presented to peers who have warned about the need for a transitional deal. Two thirds of them could be outside London. The outcome of the referendum has prompted European centres to make a pitch for the daily £440bn of business that is cleared through the City, largely through the London Clearing House, which is operated by the LSE. Rolet said the business was more likely to shift to New York than other European centres and called for a “grand bargain” with the incoming Donald Trump administration to resolve the matter.
“I’m not just talking about the clearing jobs themselves which number into the few thousands but the very large array of ancillary functions, whether it’s syndication, trading, treasury management, middle office, back office, risk management, software, which range into far more than just a few thousand or tens of thousands of jobs,” Rolet said. If the City did lose its ability to clear transactions denominated in euros – which was a contentious issue even before the Brexit vote – Rolet said 232,000 roles could be lost, citing research by consultants Ernst & Young for the LSE. That report has also been referred to by peers who said last month that thousands of jobs could be lost unless a transition deal could be secured for the UK.
Rolet said he was concerned about the “systemic impact” of moving contracts that are guaranteed by the London Clearing House, which is owned by the LSE, if it was handled too quickly. The remaining EU members have been calling for contracts denominated in euros to take place inside the eurozone. Anthony Browne, chief executive of the British Bankers’ Association, said last year that banks were “quivering over the relocate button”. When asked about this, Flint said: “Nobody wants to push the button. The best outcome for everybody is the preservation of the status quo insofar as possible.”
Ahead of the referendum, HSBC said it could move 1,000 roles to its operations in Paris. Flint said that number of roles was still at risk and that the bank was ready to take “pre-emptive action”, pointing out that HSBC also had operations in Ireland and the Netherlands. He said it depended on the bank’s business model. Banks like HSBC which had operations in Europe “can take even longer to push the button,” Flint said, Citibank, he said, had a licence in Ireland but other banks operated in the EU through their London licence and might need to act sooner.
Asked about comments by Browne, Flint said: “Nobody wants to push the button. The best outcome for everybody is the preservation of the status quo in so far as possible.” Flint said that some US banks in London were able to transact with big European companies because they used a “passport” from their operations in the UK and were devising contingency plans. Those which did not have access to Europe would start to implement those “pretty much immediately on the triggering of article 50,” said Flint.
A bank such as HSBC which had operations in Europe “can take even longer to push the button”, Flint said. Citibank had a licence in Ireland but other banks operated in the EU through their London licence and might need to act sooner. Rolet said he was concerned about the “systemic impact” of moving contracts that are guaranteed by the London Clearing House if it was handled too quickly.
The City has been calling for a period of transition to prepare for exit from the EU. Asked about this, Rolet called for a “grandfathering period” – an exemption from new rules – that lasted longer than the two years already floated. “Two years is just too short,” he said. The City has been calling for a longer period of transition to prepare for exit from the EU. Asked about this, Rolet said: “Two years is just too short.”A further three years after the two years of negotiation is needed, he added.
Andrew Tyrie, the Conservative MP who chairs the committee, said: “The unanimity among these leading City figures - about the need for a three-year ‘standstill’ at the end of the Article 50 process - is significant. They argued that without such an arrangement, major banks and other financial services firms will take pre-emptive action at a cost, perhaps large, to the sector and the wider economy.”
The vote for Brexit has sparked a debate about special deals for certain parts of the economy after carmaker Nissan announced it would develop its Sunderland plant. But Flint disagreed with the assertion by Labour MP Wes Streeting that this would be a bankers’ Brexit. Along with Rolet, and Allianz vice-chair Elizabeth Corley, he called for clarity on the UK’s hopes for Brexit in the eight to 12 weeks remaining before article 50 is set to be triggered.