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A Brexit Post-Mortem for the City

Almost five years after the Brexit referendum, and five months after Britain's exit from the European Union, the future of London as a global financial center seems secure. But although the City will remain Europe’s largest financial marketplace, its Golden Age as Europe’s financial capital is over.

LONDON – Nearly five years after the Brexit referendum, and in the five months since Brexit itself, the debate about the future of the City, the financial center of London, has remained a dialogue of the deaf. Those who voted in June 2016 to leave the European Union believe, whatever the evidence to the contrary, that the impact will be minimal, and that the warnings of job losses and business relocation are exaggerated. Remain voters are programmed to think the opposite and, whatever the evidence to the contrary, forecast gloom and doom. What can we learn from what has actually happened?

We have to acknowledge, first, that COVID-19 has confused the picture mightily over the last 18 months. People have not found it easy to change location, even if they wanted to. More important, there are some temporary regulatory arrangements that blunt the impact of the United Kingdom’s departure from the single financial market. There is a Temporary Permissions Regime in London for some EU-based firms, and the European Commission has allowed euro-denominated instruments to be cleared in London until 2022, to avoid the disruption a sudden change on December 31, 2020, might have brought. So what we are seeing today may not reflect Brexit’s full longer-term impact.

Nonetheless, changes that have occurred so far permit us to start assessing the future of the City and the financial operations based there. One move that generated headlines was the abrupt shift of trading in European equities from London to Amsterdam at the start of the year. An average of €9.2 billion ($11.2 billion) in shares was traded daily on the Amsterdam exchange in January, four times the volume in December 2020, while London’s daily average dropped sharply, to €8.6 billion. The switch can be traced to regulation: the European Commission has not granted “equivalence” to UK trading venues, and is in no rush to do so.

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