Brexit negotiations must affirm London as a financial capital

The European Union must not act to dislodge London from its role as a key global liquidity provider as part of the upcoming negotiations of the terms by which the UK leaves the EU.

Setting up trading barriers to block London would risk starving European borrowers of capital vital to their business and economic development, the Organisation for Economic Co-operation and Development (OECD) said.

No price on financial expertise

In its annual Business and Finance Outlook, the OECD said the British capital was a key financial centre with a specialised labour supply, proximity to supply chains with technical knowledge and infrastructure.

This expertise "takes many decades to build up," the group said, "bringing scale economies via trade in financial services".

City of London: EU trade barriers will starve borrowers of vital capital, OECD says - Source: Wikimedia Commons

The skills and business culture built up over this time cannot simply be torn down and relocated in a different location, the OECD report said.

London’s importance

Bank of England data show the UK is the venue for 40% of global foreign exchange trading – the world's largest financial market responsible for more than $5tn of turnover a day. It is also home to more than two-thirds of trade in international bonds.

More international banking activity is booked through London's 250-plus foreign banks than anywhere else.

The OECD said in its report: "Erecting new barriers to financial services in the post-Brexit environment will not be in the collective interest of the global economy, where London plays such a key role in international banking, bonds and foreign exchange."

Post-Brexit trading codes

The organisation said that international obligations in the form of OECD Codes of Liberalisation would present no legal barriers to operating in the collective interest in the post-Brexit environment.

The call by the OECD for London to retain its position as a key financial "agglomeration" echoes attempts by the Bank of England and the City of London Corporation to avoid cutting global financiers off from Europe.

They argue that the global regulatory framework is already in place and that the UK needs to push for an open trading Brexit.

"The City’s intrinsic strengths, including the UK’s legal system, the English language, a convenient time-zone, and a critical mass of expertise in support services such as accounting and law will see it prove more resilient than many fear," said Andrew Wishart at Capital Economics.