London's financial crown shaken by EU competition but still intact

LONDON - A year after new Brexit rules took effect following the UK's departure from the EU, the powerful City of London remains Europe's top financial sector despite losing key business and bankers to rival hubs.

The City's financial services were hit by a particularly hard Brexit: they were all but left out of the trade deal the UK and the EU agreed in December 2020, and have seen no deal on equivalence — the status Brussels grants to third countries allowing them to operate fully in Europe.

When the new rules took effect in January 2021, British operators took an immediate hit. With London prevented from offering EU-listed shares to clients outside the UK, stock market trading plunged by 40 per cent in the first month and the City was overtaken by Amsterdam in the European table.

But globally, London is still dominant in several markets, including foreign exchange and derivatives. Overall it remains the world's second-biggest financial centre behind New York, far ahead of its European rivals, according to the Global Financial Centres Index 2021.

"London has spent hundreds of years as a global financial centre. Brexit will not change that, certainly not anytime soon," said Lee Wild, head of equity strategy at Interactive Investor.

"Leaving the EU brings challenges and there are threats from Paris, Brussels, Frankfurt and Amsterdam," Wild told AFP. "But the likelihood that European rivals will wrest the crown of Europe's primary finance hub from the UK is slim."

"London still has a huge amount in its favour," Russ Mould, investment director at AJ Bell, told AFP. The City "offers an ecosystem of banks, advisers, lawyers, fund managers and hedge funds" to attract companies, he added.

However, about 44 per cent of UK-based financial services firms have moved or plan to move operations or staff to the EU, according to financial group EY. Asset transfers totalled £1.3 billion (€1.55 billion) at the end of last year, it added.

Dublin and Luxembourg are home to the highest number of office moves, while Paris has taken the most staff from the UK. In June, French President Emmanuel Macron inaugurated JP Morgan's new trading hub in Paris, several hundred of the firm's traders relocating from London last year.