While many are focused on the Northern Irish border and vaccines, the financial center of London is going through quite an upheaval. The financial services sector in London contributed 7% of the UK economy in 2019 and employs more than one million workers with half of them working in banking. UK residents are waking up to the realization that the promise for “free” does not mean absolutely, positively, and completely free.
The UK prime minister, Boris Johnson announced that the deal may not have gone as far as he would have liked in regard to financial services. He was referring to what is known as equivalence. Equivalence is the way EU regulators grant market access to firms from a country outside the bloc on the basis of deciding that the financial rules remain similar to their own. There was no commitment to equivalence in the deal. There was, however, a memorandum of understanding that the talks will remain open with a financial services regulation agreement decided by March 31. The hope is that this decision will include equivalence.
Forex and London
As discussions continue, there are some upsides to it all. To date, currency trading has been unaffected by Brexit since it is traded globally unlike shares and bonds that are traded in the market where they are issued. Currency trading largely involves US dollar pairs followed by the euro and yen. This practice is referred to as forex, where foreign exchange changes one currency into another for commerce, trading, or tourism. The UK has about 43% of the global forex market, and that has been increasing.
London has many advantages when it comes to forex that include:
- location
- timezone
- scale
- support network
- infrastructure
London is situated as a midpoint between the United States and Asia and has scale since it has a large number of international banks in one city as well as a network of supporting services. The EU expertise is spread across Amsterdam, Frankfurt, and Dublin centers. London also has the infrastructure in place needed for high-frequency and state-of-the-art trading to take place with the transatlantic cabling landing stations and data centers. Currently London’s total trade exceeds the yen.
Ultimately, London will be more of a competitor with Asia than it is with Europe. London is also projected to be a world leader in providing a spot where disputes will be able to be resolved with best practices maintained and monitored efficiently.
What Does The Future Hold For London?
Looking forward, it is most likely unavoidable that financial services businesses will continue to lose jobs as a result of Brexit. But, with proper handling and managing of the sector, there will be plenty of opportunity to rebound. For major firms to continue to keep their confidence in doing business with London, as the UK emerges from Brexit, it will be important to not only maintain but also to enhance standards and regulatory oversight. If done right, investors will continue to have confidence in London.