In its role of the watchdog, the Financial Conduct Authority (FCA) — the regulator — has written to banks warning them about moving business away from the UK because of Brexit.
Banks have been opening European subsidiaries for moving staff to locations that will reman inside the EU post-Brexit such as Amsterdam, Frankfurt and Dublin to ensure they are able to service customers after the UK leaves the trading bloc.
An FCA spokesperson confirmed last week that it had warned banks about their actions in relation to Brexit, saying: “We have emphasised to firms that we expect decisions taken by them in relation to EU withdrawal to be consistent with our statutory objectives, which includes the interest of their clients.”
A letter signed by the FCA’s executive director for supervision, Megan Butler, warned banks that moving non-EU clients outside the UK could expose them to increased costs and new risks.
The letter read: “We are prepared to intervene where we see steps being taken which could expose clients or markets to unacceptable risks.
It said banks should “make the minimum necessary changes required and clients should not be moved out of the UK until the FCA is satisfied” that the companies in question have “fully considered the impact” of such plans.
FCA director Andrew Bailey denied the warning was politically motivated, telling the Treasury Select Committee the letter was “entirely consistent with our objectives and statute to firms.”
We are aware there is some pressure on firms, and there are discussions about what we might call ensuring there’s a critical mass of business moved over to a European Union entity that’s being created,” Bailey added.
A number of banks have looked to bulk up their EU operations ahead of Brexit in March 2019 amid worries that the ability of banks to sell their services from London across the EU will be disrupted by the UK’s exit.
American banking giant Citi has strengthened its Paris offices, hiring bankers from rival firms and moving senior executives from other locations to the French capital. The bank is expected to move around 250 jobs out of London as a result of Brexit.
A survey conducted by Reuters showed the number of jobs banks expected to move away from the UK has fallen as the Brexit date approaches.
The survey showed that the number of jobs major banks expected to move in the event of a hard Brexit was around 5,800, a fall from the 10,000 jobs expected to move in the same survey a year earlier.
Dublin, Frankfurt and Paris are among the European cities competing to attract financial businesses that need continued access to EU customers after Brexit.
The European Central Bank (ECB) has encouraged banks to prepare for all outcomes to ensure a smooth transition after the UK leaves the bloc.
But it has warned firms against setting up “empty shell” institutions in Europe. The ECB said earlier this month that several banks will come under its supervision as a result of the transfer of activity from the UK.
“I would imagine that this issue will rumble on,” Bailey said, suggesting that even if firms make the minimum changes required, they may not plan for the long term.
The FCA’s attempt in ensuring that jobs remain in the UK seems all the more necessary after figures released last week by the City of London Corporation highlighted the central importance of the finance sector to the UK economy and in the words of the Corporation’s policy chair, Catherine McGuiness, the requirement to protect this golden-egg laying goose.
The Corporation has worked with a leading accountancy firm, PwC, to produce its annual estimate of the financial services sector’s tax contribution, which they say hit a record £75bn in the year to March 31 — up four per cent on the previous year and equating to nearly 11 per cent of all UK tax receipts.
The Treasury will be relieved that the claim of 250,000 City job losses made by some before the referendum appears wide of the mark (by about 240,000) but they should not be complacent.
As McGuiness says: “it is more important than ever the UK remains competitive to safeguard the sector’s employment and tax base.”
Chancellor Philip Hammond has said he is prepared to do all he can fiscally to keep the UK attractive post-Brexit.
(The author is our foreign correspondent based in the UK. He can be reached at andyjalil@aol.com)
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