EU Turns the Screws on Bankers
Clinging to Their London Desks
By Viren Vaghela
January 25, 2021, 7:00 PM EST
London financiers are discovering that warnings from the
European Union over the cost of Brexit are more than tough talk.
Even the global pandemic’s fallout didn’t provide any wiggle
room for the world’s largest interdealer broker, TP ICAP Plc.
The London-based firm said Monday it was prevented from
serving all its EU clients because it hadn’t completed its planned relocation
of staff to Paris. The company’s disclosure came hours before a Dutch
member of the European Central Bank’s executive board emphasized the need for
banks to build out their units in the bloc.
“It is essential that we continue to push banks which have
relocated to the euro area to allocate enough staff and assets to their new
structures,” the ECB official, Frank Elderson, told the European Parliament.
The developments underscore the hard line taken by European
regulators keen to compete for the crown jewel of the British economy, which
was excluded from the Brexit trade negotiations. Brussels is determined to show
the cost to leaving the world’s largest trading bloc and prise business away
from the City of London. The U.K. relies
on the industry for about a tenth of all tax receipts.
The realities of
leaving the EU have “come home to roost” for Britain, EU’s financial services
Commissioner Mairead McGuinness said on Bloomberg TV last week.
March Talks
Europe and the U.K. have yet to negotiate a deal for finance
that would permit anything like the pre-Brexit status quo to function. Until
then, assets and people are up for grabs. Talks slated for March center around
a path forward for cooperation, and have mainly symbolic relevance, while any decision on equivalence is unlikely to
come anytime soon.
Earlier this month Europe’s top markets regulator warned
firms against trying to finesse the situation, such as using online pop-up “I
agree” boxes to circumvent rules that
require investment services with European clients to be conducted within the EU.
Chancellor of the Exchequer Rishi Sunak has hinted at a
repeat of Margaret Thatcher’s “Big Bang” period of financial services
deregulation now that the U.K. is no longer bound by EU rules.
London lost 6.3
billion euros ($7.7 billion) in daily stock trades to EU venues on Jan 4,
while consultancy EY estimates that financial-services
firms operating in the U.K. shifted about 7,500 employees and more than 1.2
trillion pounds ($1.6 trillion) of assets to the European Union ahead of
Brexit.
Paris Penalty
TP ICAP’s experience offers another cautionary tale. It
didn’t manage to relocate about 80 brokers from the U.K. to its unit in Paris
before Dec. 31 due to pandemic restrictions and difficulties finding schooling
for its employees’ children, according to a person familiar with the matter who
asked not to be named discussing private details.
That left the broking firm unable to serve all EU clients on
trades like euro interest rate swaps and other euro-based products, the person
said. It was unclear how long it would take TP ICAP to relocate brokers amid
ongoing pandemic restrictions but it committed to do so at the “earliest
opportunity.” A spokesman for the company declined to comment beyond the
statement.
“Due partly to the extraordinary circumstances relating to
the COVID-19 pandemic, in particular relating to stay-at-home orders and travel
restrictions currently in effect, it has not yet been possible to complete the
relocation of staff to the EU 27 or the local hiring of brokers in the EU-based
offices of TPIE as quickly as originally planned,” the company said.
The disclosure was prompted by a notice from France’s
Autorité des Marchés Financiers Friday warning that firms face criminal
sanctions from Jan 1. if they don’t follow rules requiring an authorized branch or subsidiary within
the EU and sufficient personnel to
ensure prudent risk management.
While ICAP said there would be no “material impact” on its
financial results, the EU’s McGuinness reinforced the view from Brussels in
comments on Monday: “We will only take decisions where they are in the interest
of the European Union.”
— With assistance by Silla Brush, and Nicholas Comfort
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