Boris Johnson’s triumphant U.K. election victory makes Brexit a near certainty next month. For the City of London, Britain’s split from its biggest trading partner is a huge leap into the unknown; one that will test its cohesion like never before.
Banks, insurers and asset managers have spent billions preparing for their departure from the European Union and have moved as much as 1 trillion pounds ($1.3 trillion) in assets overseas since the Brexit referendum in 2016. The threat of a disorderly departure from the bloc encouraged the U.K. finance industry to speak largely with one voice to try to avoid — or at least prepare for — that cataclysmic outcome.
But now the no-deal Brexit threat has abated there are signs that this unity is cracking. Some in the City would like Britain to take advantage of the split and forge its own regulatory path; others want it to hew closer to the EU to make the transition as smooth as possible. With the Brexit process entering its most critical phase, the U.K.-EU trade deal, it’s far from ideal that divisions are starting to appear.
About one-quarter of U.K. financial services’ 200 billion pounds of yearly revenue comes from EU-related business, according to government reports. So there’s a vast amount at stake here.
At the core of the debate is whether the U.K. will continue to conform to EU standards. Under Johnson’s current agreement with Brussels, British financiers will in 2021 lose their so-called EU “passporting” rights (which allow them to work anywhere in the bloc). The U.K. and the EU have agreed instead on the principle of “equivalence,” which will give the City access to the EU for many financial services as long as Britain adheres to Brussels rules.