The decision by U.K. voters to leave the European Union will have significant ripple effects on the venture capital landscape— both in Europe and beyond.
When it comes to fintech, Marcelo Ballvé, Research Director of CB Insights, recently wrote: “London could fade as a fintech hub: The category most under threat is arguably London’s thriving fintech scene. As part of the EU, London’s advantages were clear: the status of London as a pre-eminent global finance hub, the abundance of European talent, and the uniformity of regulations that allowed London-based companies to easily roll out products Europe-wide. With Brexit, all the comparative advantages are thrown at least partly into question.”
Other aspiring fintech hubs, some of which are already using tax breaks to lure fintech start-ups—including Frankfurt, Amsterdam, Dublin, Switzerland, and New York—could see more investment and entrepreneurship shift in their direction as London’s advantages are eroded.
When it comes to banking, Martin Arnold, Emma Dunkley, and Laura Noonan wrote in The Financial Times that until now, most global banks have done business in the EU by setting up regulated businesses in the U.K. and using their right to “passport” into the rest of the 28-member bloc. London also serves as a major center for clearing and settling trades involving EU securities. France’s central bank governor François Villeroy de Galhau made it clear that is no longer going to work: “If Britain is not part of the single market, the City [of London] cannot keep this European passport, and clearing houses cannot be located in London either.” But so far banks have been quiet on their contingency plans because of the political sensitivity of the issue.
Once Brexit happens, EU banks from France and Germany may come under pressure from their own regulators to move jobs home. At the same time, U.K. regulators may compel the biggest ones—such as Deutsche Bank—to establish a full-scale U.K. subsidiary to have closer oversight of their activity and force them to hold more capital in the country. The U.S. has already done something similar, forcing big foreign-owned banks to set up separately capitalized holding companies. But this could backfire—driving more jobs and operations elsewhere.
Moves are not likely to be made in haste, however. Relocating investment banking operations and people is costly and complex. And London still boasts many advantages: language, legal system, and the talent pool have long been a boon to the City, as well as more intangible draws such as housing, schools, restaurants, and cultural delights. Many top traders will be asking themselves “Do I really want to live in Frankfurt or Dublin?”
Amsterdam Advantage
Without question, our Netherlands-based corporate real estate firm believes Amsterdam is—and will be—an option for any company that considers relocation from the U.K. to the Continent. We offer many business and cultural benefits:
Conclusion
The coming months will be challenging for many companies doing business in the U.K. or that are headquartered in London. For those companies, like Brexit itself, staying or leaving is an important decision that may impact the bottom line for many years. Being flexible and understanding the nuances of relocating to another European city are vitally important to weathering the impact of Brexit. That’s why it’s crucial to obtain representation from your nearest ITRA Global office, who’s affiliates provide conflict-free representation with total objectivity.
This article appeared in the Fall 2016 Issue of ITRA Global’s Newsletter, Corporate Real Estate Strategies.
