London’s bankers have been outspoken about their plans to leave London in light of the Brexit process that is being prepared by the UK government. As they contemplate the move, the European Union is considering a financial transaction tax.
Over the weekend, reports that the effort – which is limited to 10 countries in the EU – has stalled are making the race for London’s financial sector jobs more intense. Some of the main contenders for a new European financial hub are immune from the risks of a financial transaction tax – Dublin, Copenhagen and Amsterdam.
The position of Paris and Frankfurt could be well jeopardized by the proposal, which is currently in discussion in 10 EU countries, but the latest news is positive for the industry.
The participants discussing the details of the proposal are said to be facing substantial hurdles. A Bloomberg report over the weekend cited two officials with knowledge of the matter that stated that the 10 nations lack consensus over possible exemptions for pension funds.
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The finance ministers of Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain are set to meet in Brussels on Feb 21 to attempt to put the effort back on track.
Banks Unlikely to Move from London if Tax Plans Go Through
In the aftermath of the financial transaction tax decision, the European Union’s bureaucrats could well deter plans for relocation to Paris or Frankfurt. In the case that a financial transaction tax is enacted, the European financial intermediaries’ business prospects are likely to suffer materially.
Any prospective accord is to be met with stiff resistance from Denmark, Ireland, the Netherlands, and Luxembourg. The countries have not committed to the proposal and are not willing to introduce a financial transaction tax. This could lead to even more fragmentation of the European financial system – a scenario which London-based banks fear.
Trump Financial Reg Overhaul Threatens EU Competitiveness
Aside from an EU financial transaction tax, the European Union’s competitiveness is set to come under threat by the overhaul of US regulations. A substantial rollback of the Dodd-Frank Act and the prospects for a new approach to regulatory oversight in the US pose substantial risks to the long term plans of a number of big EU-based banks.
The Trump administration’s Secretary of the Treasury Steven Mnuchin remarked that new bank regulations could be more effective than simply tearing up Dodd-Frank. This is great news for the industry as the new administration is targeting depositor protection, but loosening the shackles of wholesale banks.