IMF: EU preparing for 'substantial relocation' of finance firms from London
2 min read
Preparations have begun for a “substantial relocation” of financial services from London after Brexit, the International Monetary Fund has said.
In its report on the eurozone’s economy, the IMF said “numerous activities” could leave the UK for another EU member state.
UK-based institutions were “likely to start adjusting well ahead of the actual separation” on 29 March 2019, it added.
Finance companies were some of the most ardent opponents of leaving the European Union during last year’s referendum campaign amid concerns that their activities in other member states would be curtailed due to a loss of passporting rights and regulatory divergence.
The IMF’s findings come in its Article IV report on the economy of the euro area.
While it did not discuss the potential impact on the UK, the fund said Brexit meant the EU had to make “politically difficult decisions” on its budget and warned that uncertainty stemming from the negotiations about Britain’s departure “could dampen consumption and investment” in the eurozone.
It said that the turmoil of relocations of banks and other institutions due to Brexit could imply a “modest” increase in costs of financial services for other EU countries – as well as a requirement for stronger regulatory authorities.
The report said: “Brexit is likely to transform the financial landscape, with some market activity migrating to EU-27. With substantive discussions on the withdrawal agreement to start in June 2017, it is too early to evaluate the impact of Brexit.
“However, financial market institutions are likely to start adjusting well ahead of the actual separation. To the extent that a range of activities such as clearing and securities transactions migrates to the EU-27, transaction costs may rise during the transition, although the impact is likely to be modest.
“The EU will need to work on strengthening oversight and regulation to handle a greater volume of financial transactions and mitigate risks”
It added: “Authorities are preparing for a substantial relocation of banking, asset management and clearing activities for EU-27 clients from the UK.
“Assuming a hard Brexit, London-based financial institutions are in touch with EU, euro area, and national authorities regarding licensing and locational choices.
“The provision of financial services to the EU-27 is probably not expected to shrink, but costs associated with activities hitherto conducted in the UK might increase moderately, including perhaps higher capital and margin requirements for banking and euro clearing activities, respectively.”
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