Within days of the UK voting to leave the EU in June 2016, cities across the bloc started jostling for the attention of the financial firms that would be forced to move headquarters. Brexit puts an end to London’s passporting rights, which allow firms to service clients across the EU, and to the city’s undisputed reign as the bloc’s leading financial centre.

Predictions that London would be replaced by specialist financial hubs, rather than a single city, are coming to fruition. As the Brexit transition period comes to an end, most firms have moved their EU headquarters to Paris, Amsterdam, Frankfurt, Luxembourg or Dublin. But there is still much to play for. Brexit has laid bare these cities’ strengths and weaknesses, revealing which are primed to capture new business. And while several banks tell fDi they have split activities across multiple cities to build on existing operations, others suggest they are hedging their bets. 

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“We are very aware that this might not be the endgame. Some firms have really prepared themselves to see where they can get more scale and where, in the end, the business builds up sufficiently,” says Andreas Prechtel, managing director of the Association of Foreign Banks in Germany. “The competition between these cities is still ongoing.” 

The generalist and its sidekick 

Paris’s charm offensive to lure UK business was second to none. France cut its 33% corporate tax rate to 25%, amid a slew of other pro-business reforms. “Since Brexit, regulatory authorities have developed fast-track procedures to welcome international companies in Paris,” says Arnaud de Bresson, chief executive of the lobby group Paris Europlace. “It now takes two months to open a securities or asset management company. Historically, it took a lot longer.”

Until the 1990s, Paris hosted most US firms’ European headquarters, and the likes of JPMorgan, Citi and Goldman Sachs are now ramping up local operations. Research by think tank New Financial shows that France’s lending, insurance and corporate bond markets are bigger than the UK’s, and that it will host 24% of EU capital markets activity — more than any other country. It is supported by local universities, whose finance and mathematics credentials see the French dominate trading desks around the world. 

Paris’s ties with Amsterdam are set to grow, as the Dutch capital has emerged as the EU’s new exchanges hub. The London Stock Exchange, MarketAxess and Chicago’s CBOE are among the trading platforms moving UK-based EU operations to the Dutch capital, which was already home to the headquarters of Europe’s biggest stock exchange, Euronext.

Since 2016, both cities have climbed up the Global Financial Centres Index (GFCI) published by think tank Z/Yen; Paris from 32 to 18, and Amsterdam 33 to 22. But they still trail two other EU cities.

Banking’s heartland

One of them is Frankfurt, which ranks a steady 16th. New Financial has tracked the Brexit relocations of 332 finance firms and found that 45 chose Germany’s financial centre — three-quarters of which are banks. Home to the European Central Bank, the city’s regulatory prowess has been a major drawcard. Two banks tell fDi the experience and expertise of financial watchdog BaFin was a key factor in choosing Frankfurt as their EU hub. 

However bankers have not moved en masse to the city, and some query if it will be banks’ headquarters in name only. Michael Mainelli, executive chairman of Z/Yen, disagrees. “Headquarters are centripetal,” he says. “If that is where the politics are happening in the corridors, it will attract business.”

Banks aside, hosting Europe’s biggest internet exchange point is helping the city attract firms not weighed down by legacy IT systems. “It makes Frankfurt a good place to start a business using the newest digital and cloud services, and it has drawn a variety of financial infrastructure firms,” says Mr Prechtel.

Dark horse

With little fanfare, Luxembourg has become the second most popular destination for Brexit relocations. Of its 71 businesses, the majority are asset managers, hedge funds and private equity funds — many of which were already domiciled in Luxembourg but managed out of London. Luxembourg is the world’s second biggest fund centre, beaten only by the US, and Brexit has allowed it to climb the value chain by adding portfolio management to its activities. 

The country is focused on what it does best. “We aren’t a trading hub and we aren’t an investment banking hub,” says Nicolas Mackel, chief executive of Luxembourg for Finance. “The professionals you find here have an expertise that is geared towards other activities: funds, asset management, corporate banking and payments.” 

Luxembourg’s economic, political and social stability is not lost on investors and its 12th placing in the GFCI makes it the EU’s highest-ranked city after Brexit. But the country’s land mass of 2500 sq km creates some natural limits. “The Grand Duchy wants to maintain a balance in Luxembourg life, so there’s a tension to growth there,” says Mr Mainelli.

London’s partner

With its linguistic, cultural and geographical proximity to London, it is not surprising that nearly 30% of Brexit relocations chose Dublin. But these are by no means its only merits. Ireland has the EU’s youngest population, second lowest corporate tax rate (12.5%) and a flourishing tech scene which boosts its financial capabilities. 

Ireland also hosts Europe’s second biggest fund sector and has attracted nearly 40% of asset managers leaving London, plus the likes of Barclays and Bank of America. A decade after its sovereign debt crisis, some query if financial stability concerns have curbed appetite for too large a financial sector.

But Kieran Donoghue, IDA Ireland’s international financial services head, notes that the difficulties during this period were focused on the domestic banks. “The foreign-owned institutions operating in the country proved more stable and resilient, even in situations where their parent groups were the subject of official support in their home countries,” he says.

Dublin, however, ranks just 34th in the GCFI, and many of its Brexit arrivals are the EU-facing operations of British firms looking to continue the bulk of their operations in London. 

Unstoppable force 

While London’s days as Europe’s heart of regulated financial services are over, it is storming ahead in other areas. Bank for International Settlements statistics show it comfortably leads foreign exchange trading globally, while London & Partners says the city’s fintechs attracted $3.6bn in venture capital from January to September 2020, outdone only by San Francisco. 

fDi Markets data shows that since the Brexit referendum, London has attracted 249 greenfield investments in financial services — more than Paris, Frankfurt and Luxembourg combined. And in the GFCI the city sits safely in second place. The consensus is that without access to the EU single market, London has simply fixed its gaze on conquering the global stage.

This article first appeared in the December/January print edition of fDi Intelligence. View a digital edition of the magazine here.