JP Morgan chief Jamie Dimon hit the headlines recently when he said European Union officials could force London-based firms to move more staff abroad than planned if officals demand additional banking operations be performed inside the bloc.
“If the EU determines over time that they want to move a lot more jobs out of London into the EU, they can simply dictate that," Dimon warned last week at a conference in Paris.
To the extent the banks have a presence in the EU, European officials can encourage that presence to become larger and larger, confirmed John Liver, EY’s regulatory compliance partner in Britain.
“This is certainly the case for clearing services and a few days ago there has been similar messaging for banks’ securities trading and derivatives arms," he said.
“Recent comments from European officials - that sparked Dinon’s recent comments - basically shine a light on activities in a much more visible and intrusive way that has been done so far.”
Liver pointed to recent comments made by the EU commissioner which said if UK banks provide ‘material significant clearing services for the Eurozone’ there will be at least joint supervision which could become more intense with the size of the institution.
“So, if a bank is big enough even joint supervision won’t be enough and they will be required to relocate those activities to Europe. This way EU starts to draw a bigger proportion of the business.”
Yet by far the biggest clearer of euro-denominated investment securities are in London and outside Europe’s jurisdiction. Still, he said, there are a number of things that will tend to pull the centre of gravity towards Europe over the next few years.
From where Liver sits no one is dictating what banks should do. “The EU officials talk in ‘risk’ terms and the combined effect of those risks will make people think they may need to do more.”
For instance, a lot of banks are also looking at whether securities trading and derivatives activity should be placed into a broking house - rather than kept with the banks - since broking in Europe is supervised by a different regulator than the bank regulator.
“Plus, it seems to be easier to get a securities license than a banking license in Europe perhaps not surprisingly.”
What is clear to Liver, however, is that given the political situation is very uncertain, the ability to do a deal remains very uncertain. Hence UK regulators want to see banks’ plans.
“The regulator is starting to push banks and insurers and the message is they can’t just rely on their existing business models," he said.
“And the reason is that clients and counterparties are now asking banks whether they have the infrastructure to do deals that that stretch over two years.”
As Liver sees it, while there is talk of people leaving the UK, the numbers are fewer than originally feared.
An EY tracker of 200 financial services firms for instance shows only 59 companies are discussing relocating – although the numbers are ticking up.
The EY adviser touched on the CityUK’s strategy to beef up financial service hubs in regional UK, saying Brexit is a task that has to be dealt with from a financial services perspective but the country’s plan for the industry should not just be a response to Brexit.