TAB Live on Brexit: London will not lose its financial significance

The British vote to leave the European Union has left the global market in a frenzy. Uncertainty has been dubbed the only certainty in the financial sector and questions have been raised over how the role of London in the global economy will transform before Article 50 is triggered to set the stage for the UK’s divorce with Europe.

Despite the result, however, politicians campaigning to ‘take back control’ from the EU have not designed a clear path to negotiate the terms of exit. 

In the midst of uncertain political motives and actions, is it possible to reverse the result and for the UK to remain in the EU? “Regardless, however, financial institutions in London have now been forced to rethink their business models amidst the uncertainty created by the public vote,” said Ahmed Maan Tabaqchali, the London-based chief investment officer of Asia Frontier Capital. Businesses are now likely to consider distributing their activities-and hence, risk-among several financial centres across the world, as opposed to concentrating their activities in one.

Philippe Paillart, former CEO of the DBS Group, added that regardless of the UK leaving the EU, the vulnerability in the market will reinforce the role played by other major financial centres such as Hong Kong and Singapore. Asian markets have been growing their presence in the global economy and the uncertainty of the London market situation is likely to accelerate the growth of these economies. However, to say that London will lose its significance based only on the loss of access to the free market and the pool of talent migrating from Europe is an exaggerated claim.

London has always provided a favourable investment climate compared to the regulations in Europe, where countries such as Italy, Germany and France apply taxes on financial transactions. All agreed that businesses are unlikely to leave the favourable investment climate, rule of law, talent, and culture available in London. Thus, while Brexit may reinforce the significance of other centres, it is unlikely that London will lose much of its financial significance.

In the midst of the uncertainty related to the future of the UK, what has emerged as certain is the rebellion against the British political elite and Brussels. Those who voted to leave did so in frustration with the internal division created in the country through economic decisions. While the single market provides opportunities to some people, there are others who see themselves as being marginalised by the bureaucracy in Brussels. Paillart argued that the result of the referendum is likely to serve as a soul-searching mechanism for Europe to reconsider its decision making processes.

The Asian Banker LIVE is a web-only broadcast that aims to create in-depth and insight discussions around current issues impacting the financial industry.

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