The reality has been more difficult to discern. The finance industry’s move to the continent has been piecemeal, and Brexit preparations have been complicated by the onslaught of the pandemic. Indeed, the management of the virus and the demands of home-working during lockdown mean some firms have had to slow their Brexit planning.

Unfortunately for London, one can still discern a shift in direction — amid all the fog of the Covid-19 war — that may support the Brexit doomsayers’ case. As Britain and Brussels embark on the final stage of talks to determine their future trading relationship, the trickle of resources moving away from the City is turning into a steady stream. The biggest investment banks have been spending hundreds of millions of dollars in the midst of a global recession to lease real estate on the continent, while relocating activities and jobs to set up standalone operations in the EU.

Although a single European rival to London may not emerge for some time, if at all, the shift is already posing questions about London’s future role in global finance — and Britain’s coffers.

Take JPMorgan Chase & Co. The biggest U.S. bank is moving the equivalent of $230 billion of assets from the U.K. to its EU hub in Frankfurt, Bloomberg News has reported. That represents one-tenth of the Wall Street giant’s total assets and more than a third of the assets it holds in the U.K., its latest accounts show. About 200 employees are moving to continental Europe in what one executive described as a “first wave” of relocations.

The potential impact on JPMorgan’s revenue is even more striking. In a recent interview with Bloomberg Television, the bank’s top European executive, Viswas Raghavan, said 25% of the wholesale revenue generated by the firm in the U.K. could be headed elsewhere. “It’s a reasonable start,” he said.

This sense that a quarter of the City’s investment bank business might be in play is shared by other London financiers involved in Brexit preparations. Morgan Stanley is looking for a new headquarters in London that could be 25% smaller than its current space there.

Where larger firms go, smaller ones will follow, as will the ecosystem of lawyers and consultants around them. For a country that derived 12.3 billion pounds ($16 billion) in corporation tax from financial services in 2019 — 22% of all government receipts — the stakes are phenomenally high.

As things stand, next year financial services firms in the U.K. will lose their “passport” for selling their services in the EU. Assuming the two sides agree on a deal (still a big assumption), the City firms will probably have to rely instead on a system of “equivalence.” In that scenario, the EU would be able to decide unilaterally whether the U.K.’s rules are close enough to its own regulations to allow finance industry access.

Even if granted, an equivalence regime will leave firms with too much uncertainty about their long-term access to the EU, giving them little choice but to maintain a continental base.

What’s more, Europe is desperate to chip away at British dominance. The European Securities and Markets Authority will let London’s clearing houses sell services into the EU after Dec. 31, but it’s also planning a “comprehensive review of the systemic importance” of the industry, which could see that permission removed. Clearing houses play a critical role in safeguarding financial stability, as well as managing collateral for buyers and sellers of derivatives. The U.K.’s stranglehold on clearing euro swaps is of particular concern to the EU.

London’s position as the biggest investment-management center after New York is also uncertain. ESMA wants to limit EU-based funds delegating portfolio management to teams outside the bloc, including the U.K. About 90% of the assets under management in EU funds are delegated in this way.

The City of London’s dominance in Europe, underpinned by the deregulation of the 1980s and a favored legal system, isn’t yet threatened, and forcing the creation of a European rival could backfire, as my colleague Lionel Laurent has argued. But the direction of travel has been set. Unless London can draw business from elsewhere, the City won’t be quite the destination it once was.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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