If Deliveroo Holdings Plc’s listing was meant to hang an ‘Open For Business’ sign over the City of London, the opening day crash in the shares jarred somewhat with the message the U.K. had intended to send about post-Brexit Britain.
Personally welcomed by Chancellor Rishi Sunak, the food delivery company’s initial public offering should have been a beacon to lure tech firms against competition from New York and Hong Kong, which have been winning the larger part of the business. Instead, concerns over the company’s governance and the treatment of its riders combined to produce one of the worst market debuts in City history.
The ignominious flotation was a symbolic end to a quarter that saw London’s future as a financial center once again put in the spotlight. Since the U.K. left the European Union at the start of the year, London has faced a series of challenges to its pre-eminence, most notably the embarrassment of seeing Amsterdam — a city one tenth its size — take over as the No. 1 location for European share trading.
London’s response has been a flurry of reviews into the fintech industry and listing rules, but the Square Mile’s hunt for a new identity remains a work-in-process. Early predictions of dramatic deregulation — the so-called Singapore-on-Thames option — have proved unfounded, perhaps no surprise given the City had an outsized role in writing many of the bloc’s financial rules. And for bankers in London, hopes for unhindered access to EU markets — via a process known as equivalence — have long gone, particularly as Brussels sees Brexit as a chance to deepen its own capital markets.
100 Days of Brexit: a series on how Brexit changed Britain
The bloc is stepping up efforts to strong arm even more business from Britain. Banking giants including Goldman Sachs Group Inc. and JPMorgan Chase & Co. have already moved some staff and assets to the continent, and the risk is many more will follow unless the U.K. overcomes the hurdles to secure beneficial terms.
JPMorgan’s Chief Executive Officer Jamie Dimon said last week that the EU “has had, and will continue to have, the upper hand.” Dimon, a long-time skeptic of Brexit, also warned he could shift bankers serving EU clients out of London.
“It is clear that, over time, European politicians and regulators will make many understandable demands to move functions into European jurisdictions,” he said in his annual shareholder letter. “Paris, Frankfurt, Dublin and Amsterdam will grow in importance as more financial functions are performed there.”
London’s global financial status, built on centuries of tradition and supercharged by the “Big Bang” of deregulation more than three decades ago, is unlikely to be undone by Brexit. The City got some good news on Monday when cybersecurity company Darktrace Plc announced plans for an IPO that could value the business at about $3 billion to $4 billion. Its CEO, Poppy Gustafsson, called it a “historic day for the U.K.’s thriving technology sector.”
But the chipping away that’s taken place in just a matter of months has yet to be replaced by a compelling vision for London’s future, despite that multi-pronged series of reviews aimed at maintaining its position. Many of the proposed changes amount to fine tuning rather than a complete tearing up of the rulebook. Speaking to Bloomberg, executives of several major banks said they don’t expect authorities to ditch inherited rules, including the bonus cap on banker pay.
What they expect is what some call a “tailoring” of London’s approach, hardly the swashbuckling reforms that some imagined.
Instead, banks want to eliminate some of the annoyances that came with being part of the EU, such as time-consuming and expensive trade reporting requirements, and rules that make it more difficult to raise capital from smaller investors. The hope is the efficiency shown by the U.K. in its coronavirus vaccination policy — which is far outpacing the EU rollout — can be replicated when it comes to financial services.
“It’s about speed and nimbleness, rather than sweeping changes,” said William Wright, founder and chief executive officer of New Financial, a London-based think tank.
Evolution not revolution also means protecting existing strengths as much as possible. However, London’s relationship with the EU was barely mentioned in last year’s Brexit trade deal, and those talks highlighted resentments and political point scoring that could frustrate any future discussions. Of the 39 areas in which the EU could find Britain financially equivalent, it has granted only two, and both are time-limited.
“I think there’s a lot of Europeans that want to have a bite of the golden goose,” said Fraser Thorne, chief executive officer of Edison Institutional Services Ltd, a London-based financial advisory firm.
One minor positive for the City in 2021 was that the U.K. and the EU agreed a framework for talks late last month, and in a rare Brexit development, it was done on deadline. But realistically even that Memorandum of Understanding amounts to very little, and the sense is that no significant access to EU financial markets is on the cards anytime soon.
Brussels has made no secret of its desire to become less reliant on U.K.-based financial services. Seen from outside Britain, Europe’s lack of a major global financial center within its own borders is a matter of political and strategic concern, and one that policy makers want to rectify.
In the U.K., even some of the more mild-mannered British public servants are being more forthright about the need to protect London against an increasingly aggressive EU. At the Bank of England, Governor Andrew Bailey used a Parliament hearing to, unprompted, bluntly deliver a message: The U.K. would “resist very firmly” any EU attempt to force relocations.
Any post-Brexit identity for the City will also be forged by the new business it attracts, as much as what remains in place.
Sunak and his Treasury minister, John Glen, have spent the past few months trying to sell the benefits that London can offer outside a more rigid EU system.
“If they get it right, London will remain an incredibly strong force,” said Alasdair Haynes, CEO at Aquis Exchange Plc. “But if they argue and there’s a lot of bickering and we can’t move swiftly and there’s political interference then actually London is probably in the most precarious place it has ever been.”
Officials are making a big play for the U.K. to build on its position as a hub for financial innovation, cultivating a growing ecosystem of fintech businesses spanning everything from consumer-facing businesses attempting to steal retail customers from the big lenders through to niche firms supplying specialized technology services to investment banks.
Iana Vidal, head of government relations and policy at Innovate Finance, the lobby group for the U.K. fintech industry, says Britain could steal a march on the rest of Europe by moving faster to help mold the regulatory structure for the nascent sector.
“We want to have a first-mover advantage,” she said. “You could potentially gain a head start over your competition in Europe.”
That’s an opportunity acknowledged by Brexit critic Dimon, who said London “still has the opportunity to adapt and reinvent itself, particularly as the digital landscape continues to revolutionize financial services.”
But in the short-term he’s pessimistic, warning that Brexit “cannot possibly be a positive” for the U.K. economy.