A new report says jobs tied to euro clearing would be moved out of the U.K. and sent to New York, Paris and Frankfurt over the next seven years.
Ever since the shock vote of Brexit in June, the fate of the U.K.’s financial services industry has been one of the hottest topics of discussion. There have been several reports over job losses in different sectors, the latest one being a private study from EY showing that about 83,000 positions could leave the City of London, if Britain loses euro denominated clearing rights.
The report, which was initially published in the Financial Times, estimates that 31,000 sales and trading jobs at banks as well as 18,000 back-office, legal and accounting roles could be lost. Moreover, an additional 15,000 positions in wealth and asset management plus 12,000 at companies that provide technology to finance firms could be at risk.
Officials at EY (formerly known as Ernst & Young) say the job losses would not happen overnight but over a seven-year period. However, it could have “a significant domino effect on jobs and revenue,” hitting up to 232,000 throughout the U.K.
Officials at the London Stock Exchange Group (LSEG), which commissioned the report, or at EY, which is also the LSE’s auditor, would provide further comment. The FT said that the information was shown to members of Parliament and U.K. government officials although no specific names were mentioned.
Euro-denominated clearing has emerged as one of the key battlegrounds of the Brexit negotiations and the study is based on the worst-case scenario of the U.K. adopting the so-called hard Brexit stance and losing access to E.U.’s single market. The danger is that this jewel in London’s financial services crown would move to other European financial hubs that would love to get their hands on it.
Volumes are significant with figures from Brussels-based think tank Bruegel showing around €1 trillion being exchanged in Britain every day. The bulk is for turnover of interest rate derivatives, such as forward rate agreements, swaps, and options, at €927 billion per day.
The capital city is also home to four of the world’s clearing giants — LCH.Clearnet, which is owned by the LSEG, Intercontinental Exchange, the London Metal Exchange, and the CME Group. Data from the Bank of International Settlements shows that together they account for roughly 70 percent of the business while the nearest competitor, Paris, holds just 11 percent.
France would be particularly keen to be the new derivative clearing destination and its president Francois Hollande has said that “other financial centres in the bloc” should prepare to carry out euro clearing if Britain leaves the single market. However, some industry participants such as LSE CEO Xavier Rolet say they believe that New York would be the most likely beneficiary because it has the infrastructure and skillset.
U.K. Chancellor Philip Hammond seems to concur. He has said that most of the people that he has talked to “do not believe that you could persuade clearing to go to any place where it doesn’t want naturally to go and that, actually, after London probably the most likely destination for clearing operations would be New York.”
Hammond adds: “Not Paris or Frankfurt or Dublin or Amsterdam, but New York. And that anything that split clearing up, or tried to force it relocate, would simply force up the cost of clearing with a huge cost to the European economy as a whole.”
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