Bloomberg’s editorial board thinks that competition, not regulation, should divert financial business from London to Europe. Here are the arguments put forward:

• Concentrating activities in a single location allows for economies of scale.
• Europe’s diversity of regulations hinders efficient financial markets.
• Trade barriers only increase costs. Competition should determine winners and losers.
• EU and UK should grant each other’s access if the regulatory regimes remain similar. A permanent, broad and irrevocable mutual access will prevent tax/regulatory competition between the two sides. Anything else would usher a race to the bottom.
• The UK’s financial world would have been better if it had remained in Europe, so let’s not compound the Brexit damage.

In other words, “let’s be friends”.

Well, as much as the Europeans (among which I count) appreciate their British neighbors (among which I have many friends), I beg to differ.

• In the internet age, geographic location isn’t that important. The US actually demonstrates that you can have several financial hubs. Chicago is known for its option business, Boston for its asset management, Connecticut for its hedge funds, Delaware for its incorporations and favorable laws, and New York for all of the above. In the same vein, you could find clearing in Frankfort, IT support in Warsaw and asset management in Paris.
• Moreover, COVID and Zoom show that offices headquarters can be replaced with home offices. Sorry to say, but some of remote work is bound to stick, as it should.
• Europe is moving towards an “ever closer union”. Regulatory differences inside Europe are far less than they used to, and they will keep on dissipating over time.
• There is a huge responsibility and oversight issue. Europe cannot let its financial system be regulated and managed by a foreign power. The clearing business for instance should be controlled and located in Europe. It’s not as simple of where the profits go.
• The UK has let go the financial passporting system and the free flow of goods, capital, services and people. Not the opposite.
• The UK and Europe have barely been friends, as far as financial markets are concerned. For many years, the UK’s purpose has been to grow its financial system at the expense of continental Europe. Actually, it sold itself to Asian and US investors as the friendly gate to Europe. Playing the cooperation card after you have given yourself a poor hand isn’t exactly fair play.
• Europe is funding its recovery with its own taxes. Why should the UK benefit from the efforts?

The UK can still negotiate the relation with Europe for financial matters. All negotiations are give and take. What will the UK offer in exchange for such a favor?

Credits to the Editorial board at Bloomberg, notably David Shipley.