Thursday, 21 March 2019

Brexit passporting rights. Another myth.

The City of London or better the Financial centre have for a long period faced a pull on their business from the Eurozone to the Eurozone. The EU has always had a dislike of the UK financial power and have tried unsuccessfully to shift Euro clearing to Paris, Frankfurt or even Dublin.

Christian Noyer, the former Governor of the Banque de France, said: ‘No other sovereign or monetary zone would allow itself to rely on an offshore centre.’ 

Again, really, all I can say is he doesn't get out much. Throughout the world there are very few opportunities to clear ones currencies nearly all rely on another jurisdiction for their financial transactions. Even the US who have a Financial hub many of their transaction take place outside of New York, in London or Japan.

There is a vast amount of euro trade that takes place in London on a daily basis, that is correct, but, monetary policy is set in Frankfurt by the European Central Bank “ECB”. Therefore, the European banks, the Eurozone authorities have full control over policy, plus the activities of their banks. They can easily and unilaterally set their own capital requirements and regulate until their heart's content, or as a cynic would say until they've killed their markets.

There is a fundamental flaw in the authorities push to gain control in a Eurozone capital, it's quite simple the financial institutions do not want to move, not under any circumstances. Why? Because, they are deeply suspicious that the Eurozone will stifle their market by regulating them into the abyss. To use a Nigel Farage quote “Why would they be the turkey that voted for Christmas”.

Passporting rights

Here there is an issue which is potentially serious, which has surfaced due to Brexit the passporting rights. These allow institution to operate in each other's territory without an operation established in that country. London currently can operate throughout the EU where a Swiss financial institution can not, they have to set up a subsidiary in an EU member country. Currently America, Switzerland, indeed any bank outside of the EU have chosen to set up in London in order to access thes EU markets. This may change, I use the term may as we still hope common sense prevails. But, foresure with or without Brexit the Eurozone wanted to move their finances from London.

In order to establish a subsidiary, which incidentally would apply to British banks who will operate in the Eurozone. They need substantial dedicated capital which of course is dead money, an anathema to a Financial institution. It would also mean two financial centres so of course there is a concern as to why operate two centres just move to the Eurozone. However, consider my point above re; the abyss, analyse the percentage of Euro business together with all the city's business; A recent report by Oliver Wyman put the percentage of the City’s international and wholesale banking business that is EU-related at between 20% and 25% of the total. The full report can be read here

In reality, if the financial institutions stood their ground. Primarily if you consider the loss of business to the city would be painful, perhaps not as painful as 20%. But, conversely the impact on the Eurozone would be hugely disruptive even chaotic. Of course, one considers one's options, assuming a continuum: stay entirely or relocate entirely, with many shades of grey along the way. Here one hopes for an adult discussion after which a logical win win would result, the operative word being adults in this situation, so far we've seen the reverse. One possible way round the passporting problem lies in the so-called ‘equivalence’ provisions for non-EU countries, which allow them to export financial services to the EU without passports. Under such arrangements, UK regulations would not need to be the same as the EU’s but rather they would need to be ‘equivalent’.

The future is not Europe, particularly under this EU authoritarian regime,. They have demonstrated how their single focus on ideology has destroyed the futures of many under 25s. Their growth since 2008 is pathetic; 15% that of the US and a quarter of the UK! They have not proved themselves of being worthy financial custodians. It's not only about them they have an impact globally.

Leave on the 29th

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