The EU is ready to reap the profits from our financial services and there's nothing we can do

Trepidation is the mood in the City of London as financiers nervously watch the lack of progress being made in the Brexit negotiations. From the moment the referendum was called financial services have been a major talking point but, almost two years after the vote, we are still yet to have any concrete decisions on the future for the capital city.

Phillip Hammond reckons it is in everyone’s “mutual interests” to include financial services in the deal but it most certainly is not. Now the UK is leaving, the EU has no incentive to ensure London’s financial district continues to thrive, which is why Europe has repeatedly rejected any suggestions of London having access to the single market.

When I spoke with some European politicians who are privy to the current negotiation strategy they were adamant that Brexit was a perfect opportunity to sweep up business. History tells us Europe has long contested Britain’s dominance when it comes to finance and there is nothing standing in their way from taking London’s crown.

The City of London is an integral part of the UK economy. More than one million people work in finance-related jobs and estimates put the sector’s contribution to the UK economy at £124.2bn in gross value. These jobs and this contribution are now in serious jeopardy and a number of major banks are quite openly making plans to move to the continent. JP Morgan has warned of 4,000 UK job cuts, Goldman Sachs has started to move people abroad, taking up space in Paris and Frankfurt, and Swiss investment bank UBS said the bank “will definitely” be moving people out of London.

A number of senior managers at a range of leading banks told me that contingency plans were in place irrespective of the outcome of the Brexit negotiations. The uncertainty was not something their organisations could accept and that the plans that had been drawn up could no longer be reversed. Families have been told to prepare to move abroad, clients are being alerted and office space is being acquired. The lack of clarity from the Government means they have no choice but to prepare for the worst and it is now too late to back out.

Europe will be rubbing its hands with glee as for some time it has hoped they could take at least part of this business from the UK. Clearing has been one of London’s crown jewels and Europe has had its eyes on it for some time.

Clearing houses essentially work as the middleman and bear the risks if either a buyer or a seller does not pay up. It is an incredibly lucrative business and the London Clearing House (LCH), which is part of the London Stock Exchange, clears €927bn (£810bn) worth of contracts a day – approximately three-quarters of the global market.

This supports thousands of jobs and at the moment London is the perfect place for this business to be conducted. Geographically it sits between the US and Europe, speaks the same language as the Americans while offering the perfect gateway into the single market. That door is now closing.

In 2011, the European Central Bank (ECB) issued a policy paper that stated clearing houses handling more than 5 per cent of euro-denominated products had to be located in a nation that uses the currency. The consequences would have been huge for the City of London and so the British Government appealed to the European Court of Justice (ECJ).

The UK claimed the ECB had discriminated between eurozone and non-eurozone members, which was a violation of the freedoms upon which the EU stands. The ECJ agreed and ruled the ECB could not enforce this policy, temporarily saving London’s clearing business.

During the eurozone crisis, having euro clearing taking place in London proved to be a major difficulty for the ECB as it tried to mitigate and control the crisis. There will soon be nothing stopping Europe from enforcing a policy like this and it works massively in their interests to pursue it. Manfred Weber, the head of the European People’s Party, the largest group in the European Parliament and a political ally of German Chancellor Angela Merkel and European Commission President Jean-Claude Juncker, has openly said that it was not conceivable that euro-denominated business could remain in London.

The LCH knows that this is case. Its chief executive, Daniel Maguire, said more euro clearing would move from London to its Paris subsidiary and in 2018 the plan was to “offer as many euro-denominated debt repo products in Paris, as in London”. The business is already starting to be lost and the consequences will be huge. An independent report conducted by Ernst and Young for the London Stock Exchange said up to 83,000 clearing jobs could be lost over the next seven years – the situation is critical and could have a huge effect on the UK.

The dominance and influence that London has held is under threat and a deal that will protect its lucrative financial services seems highly unlikely. Hammond’s rhetoric is empty and he knows there are no real bargaining chips for the UK to secure a deal of this nature.

Britain is hoping for kindness from the EU but when it comes to the trillions of pounds that financial services could offer there will be no such kindness and Britain will ultimately end up worse off. Europe has tried to take London’s crown as the financial capital of the world before and now there is nothing standing in their way.