Some London-based financial institutions have been looking to move their operations out of London as Brexit looms, and this could soon become a reality.
Japan has now joined the bandwagon in warning that Japanese financial institutions need clarity on the UK’s future relationship with the EU or they will begin moving some functions from London within six months, according to a report in the Financial Times today.
Executives from Japanese groups including investment banks Nomura and Daiwa Capital Markets are reported to have discussed their concerns earlier this month with City Minister Simon Kirty and Mark Garnier, the international trade minister with responsibility for financial services.
A senior Japanese bank executive also said that the the uncertainty relating to London’s future as a gateway to Europe meant it “would be better for our EU-based customers to have an alternative hub”.
The UK government has expressed concerns over a possible exodus of Japanese banks to the extent that Philip Hammond, the British Chancellor of the Exchequer, put the matter high on his agenda during a short visit to Tokyo last week, where he met with senior managers of Japanese financial groups who repeatedly voiced their fears about market access, euro clearing and access to European labour markets.
After the meeting, Hammond told reporters: “It’s fairly binary for them: they either have access to their markets or they don’t have access. If they have full access to the markets from London they can continue operating as now. If they don’t, they will have to restructure the way their operations address the European market.”
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Japanese financial institutions are major employers in the UK, with the four biggest banks together employing over 5,000 people.
The issue which the financial services groups are most concerned about and which Finance Magnates has previously reported on, is passporting, the system which enables them to use their London headquarters to conduct business with all the countries in the eurozone.
After voting for Brexit in June, Japan’s Mitsubishi UFJ has vamped up the status of its operations in Amsterdam and relocated staff from London to assist that expansion. Other Japanese banks and brokerage houses have also been preparing the groundwork for continental European operations if the move becomes necessary, although to date they have not made any moves.
A six-month deadline conveyed by the Japanese banks to UK ministers would time any proposed moves to June 2017. At the meeting, the financial services groups said they would need a guarantee that passporting would be retained after Brexit or they would have no option but to start moving some functions out of London by mid-2017.
Hammond reflected the views of Japanese banks this week when he said that “thoughtful politicians” realised that a transitional period was needed to complete a “smooth and orderly” Brexit. The chancellor wants a transitional deal agreed at an early stage of Brexit talks to provide Japanese and other banks with a guarantee they will not be confronted with regulatory issues after Brexit which is anticipated in spring 2019.
Japan’s banks have previously said they would like to keep their businesses in the UK and have also made efforts to reassure clients about their continued commitment to the capital in the aftermath of the recent warnings.