The tussle between Europe's financial centres rages on, with a new report claiming London’s outflows are steeper than first thought.

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Brexit seems to be the damaging gift that keeps on giving, particularly for the financial services industry.

Despite many optimistic assessments since the UK voted to leave the EU in June 2016, a new report from UK think tank New Financial reveals a weakening in London’s status as the premier European financial centre.

The report, entitled Brexit & The City: The Impact So Far, estimates that more than 440 firms in banking and finance have moved or are moving part of their business, staff, assets or legal entities from the UK to the EU, up from 269 identified in its March 2019 report. The researchers identify more than £900bn in bank assets that have been or are being moved - equal to about 10% of the entire UK banking system.

Both numbers are higher than New Financial’s previous estimates. Worse still is that this analysis is almost certainly a significant underestimate of the real picture, according to the report, which acknowledges that many firms could have slipped beneath the radar. In addition, the think tank expects the numbers to grow as the EU takes a tougher stand on location activity.

“‘Getting Brexit done’ is only the end of the beginning of the process: given the limited equivalence arrangements in place, over time we expect there to be a drip-feed of business and activity from the UK to the EU,” says the report.

Every barrier Brexit puts up is not ruinous in itself, but together they add up to a burdensome and unattractive business environment

Dublin has emerged as the biggest beneficiary of Brexit. It has attracted 135 firms, representing a quarter of the total business moves from the UK. Paris came second with 102 firms (19%), followed by Luxembourg (17%), Frankfurt (12%), and Amsterdam (9%). Different financial centres have attracted firms based on their sector specialisation, for example 60% of the firms that have chosen Frankfurt as their main EU base are banks, according to the report. 

New Financial also identified 7,400 staff moves or local hires in response to Brexit, and expects this number to rise as well in the coming years. The report highlights that the bigger issue is “not jobs leaving the UK but new jobs in the EU being created in future that might otherwise have been created in the UK”.

Despite the gloomy assessment of the damaging effects of Brexit on London’s financial services community, the report concludes that “there is no question that London will remain the dominant financial centre in Europe for the foreseeable future”.

This prediction seems to be supported by the most recent Global Financial Centres Index (GFCI), compiled by UK think tank Z/Yen. London is well ahead of other European financial centres, second only to New York in the global ranking. However, Frankfurt is closing the gap and has moved into the top 10, in ninth place, up from 16th in 2020.

The other favoured destinations didn’t fare as well in the 29th GFCI ranking. Luxembourg dropped five spots to 17th; Paris fell seven places to 25th; Amsterdam down six spots to 28th; and Dublin tumbled 14 positions to 48th. The GFCI ranks cities by five broad areas of competitiveness: business environment, human capital, infrastructure, financial sector development, and reputation.

But one can’t help think that Brexit is akin to ‘death by a thousand cuts’ for the UK’s leading financial hub. Every barrier that Brexit puts in the way of the free movement of money and people is not ruinous in itself, but together they add up to a burdensome and unattractive business environment that will stifle innovation and result in a lessening of London’s influence in the banking and finance industry in Europe and the world.

To read more about London’s plans to stay competitive post-Brexit, turn to Europe editor James King’s article in the April issue of The Banker, entitled London looks to the future.

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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