City of London Maneuvering To Maintain Control over Derivatives Trade under Brexit

Dec. 30, 2020 (EIRNS)—The London Economist, a mouthpiece for City of London financial interests, ran an article Dec. 28 evaluating what the Brexit deal signed between the U.K. and the European Union will mean for their patrons. The conclusion of the article is indicated by its the headline, “The City of London Does Not Yet Know What Brexit Will Mean. The likely answer: damage, but no disaster.”

Financial services were never meant to be part of this first agreement, the Economist writes, but

“This leaves a big question-mark hanging over the City, London’s financial district. It must now wait until January or later to learn what degree of market access its firms will enjoy in the EU in the future... Britain’s departure from the bloc deprives the EU of its overwhelmingly dominant hub in international finance. In 2018 Britain had a roughly one-third share of EU capital-markets activity, around twice the share of the next-highest member, France, according to New Financial, a research group.”

The City now handles 90% of the EU’s over-the-counter derivatives transactions, and 84% of all foreign exchange trading.

Under Brexit, it is expected that London will no longer have “passporting” rights with the EU (i.e., they used to be able to do everything without having to comply with EU regulations), but will be granted “equivalence” rights. As of now, the EU “has offered only temporary equivalence rights, and in just a few areas it considers crucial for its own financial stability, such as clearing (the centralized transfer of funds and ownership in securities trading). It has, for instance, agreed to an 18-month extension of current arrangements for European banks using London-based derivatives clearing-houses, beginning in January.”

How bad will it be for the City? “Already, at least 7,500 jobs have migrated from London to EU financial centers,” but initial predictions had been that as many as 50,000 jobs would be lost. Frankfurt (where the ECB has its headquarters), Paris and other centers are competing to take over from the City, but “It is hard to see any one of them rivalling London in the short to medium term.”

The Economist concludes: “Although the final financial arrangements have yet to be agreed on, it is fair to expect that Brexit will on balance be bad for the City, but not a disaster.”