The traditional City Week, which takes place annually each spring in London, was held 25-26 May in the Guildhall on the customary theme of international financial services.
However, this was the first year that the event was held since the British voted by a majority in favour of Brexit, just as the City was underlining its much-vaunted status as the world’s leading financial marketplace.
And it was against this backdrop that the organisers of City Week chose as the forum’s main theme, ‘Globalised financial services: strategic opportunities for the UK’.
A highly topical theme given that the negotiations for Britain’s exit from the European single market are about to start and that Theresa May, the Prime Minister, has called a snap General Election in a bid to secure a strong mandate for Brexit negotiations with the European Union.
The City, forever?
Over two consecutive days, from the opening session with speeches by Mr Maurice Button, Chief Executive, City Week, Andrew Parmley, Lord Mayor of London and Anthony Belchambers, Chairman of the Honorary Advisory Council, Financial Services Negotiation Forum to the ensuing panel discussions, leading personalities from the world of international finance, analysts and experts analysed the City’s attributes and prospects in the context of globalised financial services.
However, while the City currently enjoys a real and undeniable edge, its prospects are not so clear even if the majority of the speakers endeavoured to convince themselves and others that Brexit would not fundamentally alter the situation!
To quote Mr Button, Chief Executive of City Week, finance in New York was limited to a single street named Wall Street and, in Frankfurt, to a single district, whereas in London, it encompassed an entire city!
Furthermore, even if Brexit were to cause a few large global financial institutions to relocate their businesses to Frankfurt, Luxembourg or Paris, the City’s supporters believe that London has undeniable attributes such as its close relations with China and its banks, with India whose growth outlook is solid and which has historical ties with Great Britain and with the United States, whose President, Donald Trump has openly expressed his support for Brexit and his admiration for London as a financial marketplace.
This is why, as emphasised by the panellists, when discussing the theme of ‘Strategic opportunities for the UK financial services industry’, it is important to examine the challenges and prospects against the backdrop of the upcoming General Election, to make a success of Brexit and adapt to the new geopolitical realities etc.
It is obvious that the goal is to prepare the British financial services industry and London as a financial marketplace for the post-Brexit era and the consequences of exiting the European Union, to ensure that the City and its institutions maintain their competitive edge, to enhance its emblematic appeal by largely focusing on the new business and economic partners of a United Kingdom that has been freed from European ‘constraints’.
For specialists like Mr Maurice Obsfeld, Economic Counsellor and Director, Research Department, International Monetary Fund, his colleague, the Chief Economist, Ted Chu and Stephen Booth, Director of Policy and Research, Open Europe, with the implications of Brexit as yet unclear and the advent of the America First doctrine, so dear to Donald Trump, there is certainly a cloud hanging over the future of free trade. The evolving relationships between the US and both China and Russia and the continuing shifting of the centre of economic gravity towards Asia would suggest that there is the danger of countries becoming more protectionist and that international trade will suffer, negatively impacting global growth.
But according to many experts, the transition to ‘global’ Great Britain, that is to say, one which has severed its ‘constricting’ (in their opinion) ties with the European Union, will see a plethora of new and positive free trade deals, offering many opportunities.
And it is in this context that the City will have to navigate its way through this period of unprecedented change.
That is why the post-Brexit challenges are crucial for European funds and banks, that have been, until now, accustomed to transacting more than 75% of their business in London. Is this likely to change?
According to Lord Blackwell, Chairman, Lloyds Banking Group and Miles Celic, Chief Executive Officer, The CityUK, London offers unrivalled benefits. The returns offered by London, its attractive tax regime and its ties with the world of international finance are too strong for it to be easily ‘challenged’ by other financial centres such as Frankfurt or Paris.
That is why new financial regulations must be immediately introduced to prepare the City for a post-Brexit world. Many believe that regulatory equivalence might provide the UK with the best means of accessing European markets.
But all such questions and uncertainties, triggered by political and geopolitical changes, must not detract from the need to analyse and factor in new trends in the area of artificial intelligence as it relates to the financial system.
The financial services industry is in fact one of the world’s most regulated industries. It is a complex industry in which the regulatory environment impacts the pace and nature of changes. The global regulatory environment is becoming increasingly complex for global custodians and sub-custodians as well as for their clients. For market practitioners, it is no longer sufficient to merely comply with the rules. Regulations are becoming increasingly cumbersome and, in certain cases, are like a moving target. At the same time, a large quantity of data is being shared and processed in compliance with regulatory requirements, particularly for reporting purposes.
RegTech, a sub-sect of FinTech, has emerged, enabling companies to move away from the concept of ‘big data’ and focus instead on ‘smart data’. For financial institutions, it’s a matter of processing the data demanded of them by regulatory authorities smartly. The industry is currently submerged under a tsunami of data which, for the most part, are relatively meaningless. RegTech will enable organisations to have a more sophisticated grasp of the data themselves.
RegTech therefore has strong implications for the financial services industry. The City of London, as can be seen from one of City Week’s round-table sessions, fully intends to embrace RegTech as a key strategy for globalised financial services.
This aspect of the new global financial industry cannot be dissociated from the serious threats which could affect it and, in the City, the most recent massive cyber-attack, known as WannaCry, also made its presence felt during discussions at the City Week 2017 forum.
Cyber-crime has in fact been responsible for enormous financial damage around the world such as the USD 81 million loss incurred by the Bangladesh Central Bank in November 2016 and the theft of USD 2.5 million from 9,000 Tesco Bank customers in 2016.
Cyber-attacks surged by 29% between 2013 and 2016. Therefore, mitigating the effects of cyber-crime has become one of the top priorities for the financial services industry.
Cyber-security concerns all stakeholders and all financial markets which is the reason why all institutions have started to embed cyber-security in their entire processes, initiatives and systems, as illustrated by the round-table session, specially organised on the theme of ‘Cybercrime, innovative defences to innovative attacks’.
What will be Great Britain’s place?
While the post-Brexit era and the Donald Trump-inspired Global Britain doctrine dominated discussions on the first day of City Week, the focus on the second day was clearly on the future of the City and the financial services industry in an open and globalised world.
The goal of Britain’s leaders is to ensure that the UK and its economy rediscover their central role within the community of Commonwealth countries, a legacy from colonial times, which had hitherto taken a back seat with priority given to the European Union.
The financial services institutions of the City will therefore need to be fully prepared to apply the new economic policy of the post-Brexit era, which consists of signing free trade agreements with numerous countries all over the world, particularly member countries of the Commonwealth, the former colonies of ‘Her Most Gracious Majesty the Queen’.
These countries share numerous bonds with Great Britain: a shared past, close and longstanding ties and a common language. London therefore plans to sign FTAs with the majority, if not all 53 member countries of the Commonwealth, across 6 regions in the world, with its 2.3 billion people, making up nearly one-third of the world’s population in total!
The trade potential with these countries is enormous as they currently represent 15% of the world economy and will be the largest economic bloc in the world by 2050.
It must not be forgotten that the Commonwealth nations include India, Bangladesh, Singapore, the English-speaking countries of Africa, Australia, New Zealand etc.
Mrs May and her government intend to quickly sign FTAs with countries with the fastest-growing economies, India, Australia, Canada, Singapore and South Africa.
Lastly, the City’s financial services industry also explored the scope for further cooperation between the UK and US financial centres in the light of the new political era expressed by Mrs May and Mr Trump.
Both London and Washington have been going through substantial political change. However, this has not altered the status of the ‘special relationship’ that already existed between Great Britain and the United States. In fact, recent developments suggest that it could become even closer. Currently, the UK and the US are each other’s largest foreign investors, supporting at least one million jobs in each country.
British investment in the US is substantially higher than that of other major foreign investors, while the US is the single biggest contributor of FDI in UK financial services, accounting for 49% of the total.
Donald Trump has expressed keen interest in a free trade agreement with London. He has also raised the possibility of an overhaul of US financial regulation in order to enable further outsourcing.
The City has welcomed these prospects ‘enthusiastically’ and one senses that its financial institutions can hardly wait for Brexit negotiations to end so that they can have free the freedom to develop their own regulatory model for financial services so as to boost the Anglo-American partnership in financial services.
The strategy would also include leveraging British expertise in public-private partnerships, (PPP) which could be used to advantage in financing infrastructure given that the US is embarking on a significant programme of infrastructure investment…
As City Week, with its strong emphasis on the new post-Brexit era and the America First doctrine, drew to a close and the final round-table sessions focused on the benefits offered by countries such as India and China, it became clear that London, as an international financial marketplace, will now focus on two strategic priorities.
The first is to show that exiting the European Union will not be too detrimental for the City and that the largest international financial institutions will remain in London despite the threat of competition from financial centres such as Paris and Frankfurt.
The second strategy will be to ensure that the post-Brexit era becomes the starting point of a fresh period of economic and financial growth for Great Britain, by reaching out to member countries of the Commonwealth as well as to all those which wish to sign new free trade agreements with London, with the United States at the top of the list.
The Kingdom of Morocco, a loyal and longstanding partner of the United Kingdom, will need to take stock of these trends with realism and with a sense of opportunity, given that the economic partnership between the two countries is already well established and that Moroccan financial institutions are already working with the City and its various organisations (London Stock Exchange, CityUk, etc.).
DNES in London,
Afifa Dassouli
Original article : https://lnt.ma/forum-financier-de-city-week-a-londres-brexit-or-not-brexit/
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