If Deliveroo Holdings Plc’s listing was meant to be hung over the City of London with an “Open For Business” sign, then the opening day stock crash was something with the UK’s message about the post-Brexit in Been linked.
Greeted personally by Chancellor Rishi Sunak, the grocery supplier’s public offering should have been a beacon to lure tech companies against competition from New York and Hong Kong, which have won most of the deal. Instead, concerns about corporate governance and the treatment of its drivers resulted in one of the worst market debuts in the city’s history.
The shameful IPO was the symbolic end of a quarter that once again brought the future of the London financial center into focus. Since Britain left the European Union earlier this year, London has faced a number of challenges to its supremacy, most notably the embarrassment of adopting Amsterdam – a city only one-tenth its size – as the number one location for the European one Stock trading.
London’s reaction has been a flurry of reviews of the fintech industry and listing rules, but the Square Mile’s quest for a new identity remains a work-in-process. Early predictions of dramatic deregulation – called the Singapore-on-Thames option – have proven unfounded, perhaps no surprise given the city played an oversized role in creating many of the bloc’s financial rules. And for bankers in London the hope of unhindered access to the EU markets – via a procedure called equivalence – has long since vanished, especially since Brussels sees Brexit as an opportunity to deepen its own capital markets.
100 days of Brexit: a series on how Brexit changed Britain
- “Hostile” EU vaccine spewed out support for Brexit with Great Britain
- Brexit Britain’s biggest test could be survivability
- 100 days of Brexit: was it as bad as “Project Fear” warned?
The bloc is stepping up its efforts to bolster even more business from the UK. Banking giants like Goldman Sachs Group Inc. and JPMorgan Chase & Co. have already relocated some people and assets to the continent, and there is a risk that many more will follow if the UK fails to overcome the hurdles of obtaining favorable terms.
JPMorgan Chief Executive Officer Jamie Dimon said last week that the EU “had and will have the upper hand.” Dimon, a longtime Brexit skeptic, also warned against moving bankers serving EU customers out of London.
“It is clear that over time, European politicians and regulators will make many understandable demands to move functions to European legal systems,” he said in his annual letter to shareholders. “Paris, Frankfurt, Dublin and Amsterdam will gain in importance as more finance functions will be performed there.”
London’s global financial status, which is built on centuries of tradition and charged by the “big bang” of deregulation more than three decades ago, is unlikely to be undone by Brexit. The city got good news on Monday when cybersecurity firm Darktrace Plc announced plans for an IPO that could value the business at around $ 3-4 billion. CEO Poppy Gustafsson called it “a historic day for the UK’s thriving tech sector”.
But the split, which occurred in just a few months, has yet to be replaced with a compelling vision for London’s future, despite this multi-pronged series of reviews aimed at asserting its position. Many of the proposed changes amount to fine-tuning rather than completely breaking down the rulebook. Speaking to Bloomberg, executives from several major banks said they don’t expect authorities to abandon inherited rules, including the bonus cap on bank withdrawals.
What they expect is what some call an “adaptation” of the London approach, hardly the audacious reforms some have envisioned.
Instead, banks want to remove some of the annoyances associated with EU membership, such as time-consuming and expensive trade reporting requirements and rules that make it difficult for smaller investors to raise capital. The hope is that the efficiency the UK has shown in its coronavirus vaccination policy – which far exceeds EU adoption – can be replicated in terms of financial services.
“It’s more about speed and agility than big change,” said William Wright, founder and CEO of New Financial, a London-based think tank.
Evolution instead of revolution also means protecting existing strengths as best as possible. However, London’s relationship with the EU was barely mentioned in last year’s Brexit trade deal, and those talks showed resentment and political scoring that could thwart any future discussions. Of the 39 areas in which the EU could find Britain financially on par, it has only approved two, and both are temporary.
“I think there are a lot of Europeans who want a bite of the golden goose,” said Fraser Thorne, chief executive officer of Edison Institutional Services Ltd, a London-based financial advisory firm.
- Listen to the latest Stephanomics podcast on 100 days of Brexit
- How Brexit is changing the City of London bit by bit
A small plus for the city in 2021 was that the UK and EU agreed on a framework for talks late last month, and this was completed on time in a rare Brexit development. But realistically, even this declaration of intent is very little, and the point is that there is no significant access to EU financial markets in sight for the foreseeable future.
Brussels has made no secret of its desire to become less dependent on British financial services. Viewed from outside the UK, the lack of a major global financial center in Europe within its own borders is an issue of political and strategic importance for policy makers to correct.
In the UK, even some of the milder UK officials are more open to the need to protect London from an increasingly aggressive EU. At the Bank of England, Governor Andrew Bailey used a hearing in parliament to deliver a blunt message without being asked: Britain would be “very firmly” opposed to any attempt by the EU to force relocation.
Any post-Brexit identity of the city is also forged by the new business it attracts, as well as what stays in place.
Sunak and his Treasury Secretary John Glen have been trying for the past few months to sell the benefits London can offer outside of a more rigid EU system. “If they get it right, London will remain an incredibly powerful force,” said Alasdair Haynes, CEO of Aquis Exchange Plc. “But when they argue and there is a lot of bickering and we cannot act quickly and there is political interference, then London is probably the most precarious place there has ever been.”
Officials are keen to see the UK build its position as a financial innovation hub and cultivate a growing ecosystem of fintech companies that includes everything from consumer-centric companies trying to steal retail customers from the big lenders to niche businesses that specialize Companies supply technology services for investment banks.
Iana Vidal, Head of Government Relations and Policy at Innovate Finance, the lobbying group for the UK fintech industry, says the UK can steal the advance from the rest of Europe by moving faster to shape the regulatory structure for the emerging sector.
“We want to have a first mover advantage,” she said. “You could possibly get a head start on your competition in Europe.”
This is an opportunity recognized by Brexit critic Dimon, who said London “still has the ability to adapt and reinvent itself, especially as the digital landscape continues to revolutionize financial services”.
In the short term, however, he is pessimistic and warns that Brexit “cannot possibly be positive” for the UK economy.
© 2021 Bloomberg LP