Bosses sound Brexit alarm
London Stock Exchange CEO warns of 232,000 job cuts, loss of clearing business and Europe-wide instability
London financial bosses have issued renewed warnings about the potential effect of Brexit.
Speaking in testimony before the Treasury select committee in the capital on Tuesday, London Stock Exchange Group CEO Xavier Rolet outlined the most dire threats should officials fail to implement an orderly transition out of the EU.
He said the effect would not just lead to 232,000 job cuts and the loss of the UK’s clearing business, it would pose a risk to broader financial stability.
Testimony from HSBC Holdings chairman Douglas Flint and Allianz Global Investors vice-chairwoman Elizabeth Corley echoed Rolet’s warnings on the need for a longer-term, "grandfathered" transition plan.
Financial services bosses have pleaded for a so-called "soft Brexit" that would preserve access to the single European market as much as possible.
While those hopes seem to have faded in recent weeks, the executives reasserted their desire for some sort of transitional agreement to be negotiated by Prime Minister Theresa May’s government to protect London financial companies.
"What is required to maintain stability and customer behaviour, no disruptive changes, is grandfathering of the existing conditions for a limited period of time in parallel to Brexit negotiations," Rolet said.
Flint reiterated his call for a two-to three-year "standstill" or transition period that maintains the status quo, regardless of the outcome of negotiations, to allow banks time to restructure their operations and move, hire and train staff.
"Our regulators and customers expect us to plan for the worst," he said. "We need to assume what might happen if we end up with a break after the Article 50 process with no … transitional arrangement."
Article 50 refers to the trigger for Britain that will formally begin the two-year process of leaving the EU.
Before the referendum, the bank said it would move 1,000 investment bank staff to its office in Paris if the UK voted to leave.
HSBC executives have since softened their stance, saying the number represents a worst-case scenario and the firm can afford to wait and see how negotiations play out by virtue of its already licensed French subsidiary, a luxury many US peers do not have.
Euro-derivatives clearing has been a key battleground since Britons voted in June to leave the EU, with leaders from Germany and France threatening to strip those operations from London.
A huge shift in trillions of dollars in risk assets and thousands of jobs could begin unless officials agreed on a way to, at least temporarily, guarantee the existing framework, Rolet said.
The grandfathered period should last more than two years, he said.
If euro derivatives clearing were somehow stripped from London, a rival to the London Stock Exchange could be the beneficiary, depriving the company of lucrative business.
Since the referendum, Rolet has framed the issue as even larger than the company he runs, saying it would hurt the financial industry as a whole and could even weaken all of Europe by driving jobs and services to New York.
He amped up his warnings on Tuesday. Rolet had previously said 100,000 UK jobs were at risk if clearing were clawed away to another territory. On Tuesday, he raised that number to 232,000, referring to an EY report, saying two-thirds of them were outside London.
The European Central Bank could mandate euro clearing to move, as it had tried to do before, or use regulatory details to effect the change, he said.
Rolet warned in November that talks were already under way within the EU to limit euro clearing outside their jurisdiction, a sign of how badly the bloc wants London’s financial turf.
"Since … the outcome of the referendum, we have seen calls by continental regulators to customers warning them of the risk euro clearing would be mandated to leave the UK," Rolet said.
Flint warned Brexit could lead to not only London losing jobs in financial services, but Europe as a whole.
Unless there was clarity soon on new arrangements, US investment banks would be loath to invest more capital in the region considering their home market and Asia were far more lucrative.
"All of us are struggling with what we call Jenga," Flint said. "That is, are there individual pieces that don’t look particularly important, but are actually crucial to the underpin of the … cluster that exists today?"
He referred to the clearing industry as one of the "major pieces", which is "not the sexy piece, but effectively the most critical piece".