The race is on between European cities including Frankfurt, Dublin and Paris for London's finance crown following the Brexit vote.
Just a day after the vote result was announced last week, Ireland's foreign investment agency had already contacted more than a thousand investors letting them know the Emerald Isle is part of the European Union and will remain so, while offering assistance in moving staff over from the United Kingdom.
Although this is all very premature as Article 50 is yet to be triggered and when it is, there will be up to two years of negotiations, these other major European cities are wasting no time in trying to hasten its downturn.
Paris, Frankfurt cajole London’s potential defectors
Paris Europlace, which promotes French finance plans, is to travel to London to entice financial firms and professionals while the French government agency Business France has already published and is distributing leaflets highlighting the benefits of working and living in Paris.
In preparation for thousands of potential defectors, Frankfurt officials have set up a specialist hotline for banks that want to discuss moving operations outside of the United Kingdom.
Only when Article 50 is invoked by the new British prime minister in the next three months can exit negotiations begin with the EU.
Financial regulation will be a key issue for the UK government. Around 2.2 million people are employed in financial and related services, with over 700,000 based in London, and with the financial industry contributing 12% of UK economic output in 2014, the stakes are high.
Googletown, Slack, Twitter, Airbnb: This is Dublin
Out of all the competitors, Ireland seems to be in the best position to claim the finance crown, that’s if it actually comes up for the taking. With a corporation tax rate of 12.5%, the lowest in Western Europe, it is already the EU base for tech giants such as Google, Microsoft, Facebook and Apple.
Twitter, Airbnb and Slack are other notable tech companies who have their European headquarters in Dublin, close to the city’s so-called Silicon Docks, which lies near a neighbourhood dubbed “Googletown” because of Google's vast campus there.
Other unique attractions Dublin has to entice UK fintech companies to set up base across the Irish sea are a young, native English-speaking, tech-savvy population of 4.6 million people, an openness to overseas talent and a government ready to welcome them with open arms.
Then there is the attractiveness for licensing intellectual property rights, with patent and copyright income subject to just 6.25 percent tax in many circumstances, and 25 percent tax credits available for research and development spending, it is no surprise that so many U.S tech companies are using Ireland as their base for licensing their technology to all their European subsidiaries.
Doubts over UK’s passporting mechanism
By some rankings, London is the world’s No.1 financial sector capital, ahead of New York, Hong Kong, and Singapore and what happens to those figures now that the UK has voted to leave the EU is anyone’s guess.
Financial firms that are located in Britain can operate in the EU, via a mechanism called “passporting.” Britain will have to renegotiate these rights, and many believe it will be impossible to secure better terms than they have now.
Jon Terry, the head of financial services at PWC in London, said; “It’s a significant risk that we won’t get as favorable terms as we have now.”
One company whose next moves bear watching is Transferwise. With its sky-high valuation, it is a massive player in the fintech space and as “passporting” allows Transferwise to be regulated by the UK’s Financial Conduct Authority, but offer remittance services across the EU without additional hurdles, it means the fintech firm can keep its staff in the UK while offering those services across Europe, without the need for physical branches elsewhere.
Money-transfer and payments start-ups would be hardest hit by the end of EU passporting, but as the jury is still out on the true impact of Brexit on the fintech industry, we will just have to wait and see if London’s finance crown goes up for the taking and if Dublin could be the European city to take its place.
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