Thursday 11 February 2021

Finance and the Irish border

After the fishing industry has been ruined, it looks like the next one to suffer from Brexit will be financial services. Yesterday, the FT reported that for the first time Amsterdam had overtaken London as the top European venue for share and derivatives trading. And essentially they came from nowhere to do it. The FT say an average of €9.2 billion per day was traded in January across three platforms in the Dutch City compared to €8.6 billion in London. This was a fourfold increase for Amsterdam over December. 

It sets down a marker about the growing influence of Amsterdam and the waning of London. It has all been one-way traffic so far and nobody as far as far I know expects any change for the foreseeable future.

This is not to say there will be a big hit to UK GDP and Analysts and executives the FT spoke to say the transfer does not mean thousands of jobs leaving London, while the tax hit would be limited to the effects the move in trading would have on the profits of companies involved. But presumably fees previously paid to London Brokers will now go to Holland. It may be more symbolic but The City can't be complacent.

It comes a few days after another report, this time on a website called Financial News, that claims a further exodus is under way as some of the world’s largest investment banks are preparing a second wave of job moves away from the City amid a shake-up of their European operations.

The FN say:

"Thousands of jobs could be moved from London’s financial districts as banks including Goldman Sachs, JPMorgan, Citigroup and BNP Paribas are continuing to shift staff away from London as part of their Brexit plans, according to conversations with senior bankers and recruiters on the continent. Some banks are also moving dealmakers..."

Andrew Bailey, governor of the Bank of England, in his mansion house speech attacked EU demands for banks in the UK to comply with Brussels regulations as "unacceptable." 

Bailey told his audience of financial business executives that the UK should refuse to allow Brussels to restrict how the UK industry develops and look instead to global financial regulators as the main rule makers. He called the EU's insistence on an equivalence regime "out of line with all other deals signed by Brussels."

It is the hubristic head-in-the-sand approach that has got us where we are now.  Bailey is beginning to sound like the fishermen who thought that their industry would thrive after Brexit. While those at the top deny reality, on the ground banks and brokers, dealers and insurers are gradually succumbing to the inevitable and migrating into the larger market because it's the rational thing to do.

As for Britain looking to global financial regulators this ignores the fact that the EU also have a role on the same regulators and their voice will carry more weight - it's a simple matter of size.

And talking of size, I note EU Vice Commissioner Maros Sefcovic has replied to Gove's earlier letter with his own. Just as Gove used the EU's vaccine error and article 16 threat, to try and score points and gain the moral high-ground, Sefcovic manages to insert a reference to the UK Internal Market Bill of last year:

"It is in that spirit [of shared commitment] that the Union spared no efforts last year to find, together with the United Kingdom, pragmatic solutions that could help economic operators adapt to the new situation while respecting the protocol and applicable union law. I am glad that we managed to agree on these temporary flexibilities in the framework of the Joint Committee, despite the uncertainty caused by the UK Internal Market Bill, which led to the opening of an infringement procedure."

He goes on to say "the decisions adopted and arrangements agreed in the Joint Committee some six weeks ago have been widely welcomed as a solution that works for both sides. They urgently need to be fully and faithfully implemented."

His letter then lists areas where we haven't delivered:

The Border Control Posts (BCPs) or Entry Posts are not yet fully operational. Official controls at the BCPs are currently not performed in compliance with the Withdrawal Agreement protocol and European Union rules: very few identity checks; a very limited number of physical checks other than on live animals, live fish and plants; all non-compliant consignments are accepted, even if destined for Ireland. Furthermore, packaging is not labelled and consignments not monitored at destination as foreseen in the UK's declaration of 17 December. In addition, a number of consignments are entering Northern Ireland with being declared or without valid certificates, contrary to these declarations.

I am also concerned that the United Kingdom has not yet fulfilled its obligations under the Joint Committee decision of 17 December 2020 to provide Union representatives with the required real time access to all its IT systems referred to in that decision. In particular access to key customs IT systems, such as the import clearing system (CDS has not yet been provided. We are this not currently receiving the information as to how mutually agreed flexibilities concerning e.g. the "trusted trader scheme" or simplified health certificates are being used in practice.

I must say I recognise this European approach. It is brutally logical. How can you say something isn't working well if you haven't implemented it?

The British approach is to abandon something the minute a problem occurs. It's why we invent things that others go on to exploit. The Europeans go through things slowly step by step until they get something working. 

Essentially, Gove, Frost and Johnson made decisions without consulting people, agreed to procedures which are now creating huge problems and are now trying to get out from underneath it all. The EU simply won't let it happen. The NI protocol is the solution to Brexit  -   it is simply the price you need to pay. 

Gove and Sefcovic are due to meet later. Oh to be a fly on that wall, eh?

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