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Hammond Says UK Financial Services Cannot Be Replicated

Britain's Chancellor of the Exchequer Phillip Hammond arrives in Downing Street in London, Britain, Sept. 7, 2016.
Britain's Chancellor of the Exchequer Phillip Hammond arrives in Downing Street in London, Britain, Sept. 7, 2016.

Britain's finance minister Philip Hammond warned other European Union countries they would be making a "huge mistake" if they tried to break up London's dominance as a global financial center after the country leaves the bloc.

In a sign of tense negotiations that lie ahead as Britain tries to negotiate its exit from the EU while keeping as much access as possible to its single market, Hammond said London's "complex ecosystem" of banks and financial services could not be replicated elsewhere.

"To break it up or try to damage it in the pursuit of some very narrow and hypothetical national advantage would be a huge mistake for any of our European Union partners to follow," he told lawmakers.

"London's financial services market supports the real economy across Europe, and not just in the U.K. German car manufacturers, Italian manufacturers of consumer white goods use the City of London," Hammond said.

His comments were among the strongest yet in support of the City of London finance industry since the referendum, and echo arguments being put forward by the sector itself.

London dominates much of European finance, accounting for 78 percent of its foreign currency trading, 85 percent of hedge fund assets and 74 percent of off-exchange derivatives trading, according to TheCityUK, which promotes UK financial services.

After voters decided in a referendum in June to leave the EU, Britain will have to negotiate new trading terms with the bloc. The financial sector, which represents more than 10 percent of Britain's economy, is worried that it will lose "passporting" rights to do business across the single market.

Hammond said Britain would leave the single market and would try to secure a deal that was suited to the country's interests.

"The arrangements we negotiate with the EU will be bespoke, I have no doubt whatsoever about that," Hammond said.

The financial sector has acknowledged that some parts of the industry would not need a passport because they do not do much business in the EU.

EU leaders have said full access to the single market must be matched by the freedom for EU citizens to work in Britain.

Highly-skilled bankers welcome

Hammond said Britain could not accept uncontrolled free movement of people from the bloc given the political message from the June referendum, but he wanted a deal which gave British businesses as much access as possible to the EU.

Banks in London recruit large numbers of workers from the bloc and have warned they may have to move elsewhere if they are unable to continue doing so.

"I would expect that using the control that we will have over the movement of people, we would use it in a sensible way that would certainly facilitate the movement of highly skilled people between financial institutions and businesses in order to support investment in the UK economy," Hammond said.

He dismissed warnings that the clearing of euro-denominated transactions such as derivatives will shift to the eurozone after Brexit, as called for by French President Francois Hollande and others.

Former Bank of England deputy governor Charlie Bean said on Wednesday that Britain would lose that market.

"Clearing in London is a massive business and it benefits from huge economies of scale," Hammond said.

"Most of the people I am talking to do not believe that you can break off bits of the clearing system. Most of them do not believe you can persuade clearing to go to any place it does not want naturally to go."

After London, the most likely destination for clearing would be New York rather than anywhere in Europe, Hammond said.

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