Frankfurt am Main’s skyline is famous among Germans. Its resemblance to the city’s bigger sister across the Atlantic has even brought about the half-serious nickname of “Mainhattan”. Indeed, in order to become even more like New York, Frankfurters are currently wooing London’s bankers, who are looking for continental alternatives if Brexit becomes a reality. But what’s the likelihood of Germany’s financial hub profiting from a possible banker-migration?
The main reason for banks to leave the UK is that they require passporting rights in order to do business across the channel. Such rights are based on the two European principles of free movement of services and freedom of establishment. These allow a bank in one EU country to do business in any other country without having to consult with the respective banking authority. Once the UK has left the Union, its passporting rights are no longer valid. In order to provide their services in other EU markets, UK banks would therefore have to establish within an EU member state.
It is no surprise that there are various cities who stand ready to welcome affluent bankers, who besides their wallets, promise to bring substantial long-term business. Currently, there are four major contenders for the new ‘bankers haven’: Paris, Dublin, Luxembourg and Frankfurt. Each of the candidates offers pros as well as cons and it is likely that all four will profit to some extent.
The three financial sub-groups, who are likely to emigrate from the UK, prioritize different headquarter locations according to their own requirements. Most pundits expect insurance companies to primarily move to Luxembourg. FinTech companies are expected to move to Dublin where online giants Google and Facebook have already established a well-integrated hub for digital services.
For commercial banking services with a focus on trading and clearing, Frankfurt and Paris are presumed to be the most favored alternatives within Europe. The European Banking Authority (EBA) – among other supervisory institutions – is likely to move to the home of the European Central Bank (ECB). Additionally, Brexit was a game changer for the fusion of London Stock Exchange (LSE) and Deutsche Börse. Because of the possibility that the LSE might lose its passporting rights, Deutsche Börse’s managers are now looking to renegotiate the deal in favor of Frankfurt.
But perhaps the candidates are putting the cart before the horse. At a recent meeting of the German Association for Banks, the senior figures present tried to temper the perhaps exaggerated hopes of the finance-hub hopefuls. Until there is certainty about Brexit, banks are unlikely to make any decision to move their headquarters away from London, although some have already done so, but for different reasons. It came as a surprise for many at the event when insiders clarified that Citigroup’s announcement that they would move their European retail-banking headquarters from London to Dublin had, in fact, nothing to do with the British referendum. Instead, it was triggered by the attraction of a more beneficial tax regime in Ireland.
What is certain is that … there will be uncertainty, but for financial institutions with a footprint in London it may be time to get to know cities like Frankfurt and Dublin. Besides the crucial passporting rights, banks should not forget about other criteria as well. Where are they likely to find qualified personnel? What do local availabilities and prices of office space look like? What impact might different labour laws have on their businesses? And last but not least, where would their bankers actually like to work?
The city of Frankfurt is already eager to answer these questions. In view of the lively competition between the cities to attract London’s bankers, it has established initiatives, such as Frankfurt Main Finance, to facilitate the transition. Further support can be expected from the political arena, and wise companies looking to Frankfurt will proactively engage with the local government to secure such support. If the UK should really does separate from the EU, leading regional politicians in Frankfurt and the state of Hesse have indicated an openness to work with potential inbound companies on regulatory issues such as Frankfurt’s stricter labor laws.
The path to Brexit is likely to be long, and uncertain… but with the right strategies and approach in the transition period, including engaging now with governments in other member states, and with those shaping Brexit strategies, business can mitigate potential risk and harness opportunity.
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