Right now, if you want to IPO a Germany company, your friendly Goldman Sachs banker in London can do the whole thing over email.
But from 00:01CET 01/01/21, that banker will need to move to the EU, establish residency, get approval to open GoldmansEU, open it (including getting the correct training and certification and moving a tonne of money there), setup to pay taxes and abide by local and EU regs, and then call the client back.
He'll sack his UK staff or try and take them. He'll stop paying UK taxes. He'll stop funding the UKs Museums and Operas and Lamboghini dealerships.
Financial services for the world's largest, most developed market has been a massive boon for the UK. Its funded everything else we've done.
Passporting was the core economic thing we wanted in a trade deal. Fishing and farming and manufacturing are all worth less than just banking. And we didn't get it.
But we can continue to sell some cod as long as we abide by Brussels decisions so I guess I need to retrain...
It's interesting to me what would fall foul of the new limitations. If the call is taken from someone in Frankfurt and they forward it on to someone in London, does that count? How about if they work in a team together? Or if the Frankfurt banker asks advice from someone in London. It seems difficult to draw a line there. I'm not really clear whether it's just about having a local subsidiary for compliance purposes, or whether it literally means no assistance at all, or what.
So no one bothers having more than 1 EU entity. Offices maybe, but not entities.
Starting in a week, the London entities that all those big banks set up are useless for offering services to the rest of the EU.
This is a big issue because its NOT enough to just get a PO box and register a company. You need to capitalise and regulators want to meet traders. You need to pass the local exams and comply with the local regulations.
Otherwise 101 foreign banks would not would have such a big London presence, they'd just run it from their home locations (Hong Kong, New York, Singapore).
For a long time, the UK has had a big advantage because the FCA were rapid and easy to satisfy. You could get a bank up and running here in just 2 years for less than 100m. Now you have to justify keeping that office when 80% of its business now needs to be done in Frankfurt, Paris, Dublin, Zurich or wherever.
This all seems like a lot of fuss and a bit anti business right?
The reason we all (America, Japan, EU, HK, Singapore, etc) do this is because its the only way to avoid major crises with huge knock-on effects. Capital requirements came in to avoid another sub prime bailout. The tests and training and licensing of individuals has grown up after 101 scandals, most recently the rate fixing on fx. Europe especially has learned that under regulation in finance is much more expensive than prudence. And prudence for complex, large, interconnected, opaque, big banks is pricey...
The services that are potentially being forced to open up EU offices are mostly the cost centres, which are very commoditised anyway and have been increasingly automated over the last decade.
Although the EU have said something about not being able to just have a registered office in the EU for the sake of regulation, so far they haven't really explained how they're going to enforce that. Especially as they've been moving in the direction of allowing greater third country participation in their financial system in the first place. It would be difficult allowing the US to participate while trying to block the UK.
Besides, when a computer is making the decision, what does it even mean to have the "decision maker" based in Europe?