Brexit – A new Chance for Swiss Financial Centers?

New agreements, new locations and the development of the British economy. Brexit is reshuffling the cards – so who are the players placing the right stakes?

After the summer break, there will be a number of heavyweight dossiers on the political agenda of Swiss foreign policy. Apart from the “Rahmenabkommen” (bilateral framework agreement on trade etc. between CH and the EU), there is also an agreement underway on bilateral financial services between Switzerland and the United Kingdom. However, the potential room for negotiations here will be determined by decisions made in the course of Brexit procedures.

Brexit and its impact on Swiss negotiations with the EU.

The transitional period will officially expire on 31 December 2020. Then, Great Britain will no longer be part of the EU customs union and hence the EU market. Such a rapid termination would not have been necessary as the withdrawal agreement stipulates that both parties may agree on a two-year extension of the deadline by 30 June 2020. However, a distinct and unmistakable "Thanks, but no thanks" was sent out by 10 Downing Street on 15 June already. The British Minister Michael Gove, responsible for Brexit, summed up his government's position shortly before: "We will not apply for an extension. That's it - we will leave the transitional period on 31 December. It will provide clarity and certainty to our economy and allow companies to prepare themselves 'appropriately and flexibly'".

However, a recent statement by Carolyn Fairbairn, chairwoman of the British industry association CBI, made it abundantly clear that the British economy has an altogether different opinion: "The resilience of the British economy has hit rock bottom. Every penny set aside by companies for consequences of Brexit, the stocks that have been built up – it has all been exhausted".

Great Britain is increasing the pressure - but so is the EU. Because as soon as the EU gives in, there is concern to have to enter into similar compromises with other partners, such as Switzerland or China – additionally they are having to handle persistent internal conflicts within the EU itself – currently between Germany, France and the austere four (Austria, Denmark, the Netherlands, Sweden), for example with regard to the Corona rescue fund or the long-standing differences between the economically strong northern European countries as opposed to the economically weaker South.

Switzerland, too - infamously known for its cherry-picking tactics in Brussels – will enter new rounds of talks with caution and it will be keeping a close eye on what the Brexit process will entail. In 2019 the EU demonstrated in no uncertain terms what it thought of the slow progress the "Rahmenabkommen" negotiations and unceremoniously removed the Swiss stock exchange from the position of equal stock trader in the EU!

To date however - due to measures quickly implemented by the Swiss government – negative effects have been minimal.

New Locations

In the UK, over 50 banks have already left the City of London for mainland Europe as a result of imminent Brexit - Frankfurt, Paris, Luxembourg, Amsterdam or Dublin are amongst the most popular destinations. This is because Brexit is forcing banks, who wish to continue their financial business activities in the EU to move to an EU location. It is estimated that the City of Frankfurt for example, will see 10'000 new jobs created in the financial sector in the near future. It translates to a balance increase of a staggering 750 to 800 billion euros. But neither Frankfurt, Paris, nor any other European city for that matter, will really be able to compete with the infrastructure and networks London's financial centre has to offer. Therefore: global financial transactions will continue to be conducted in London.

Bilateral Financial Services Agreement

Exactly one week ago, Finance Minister Ueli Maurer met UK's Chancellor of the Exchequer, Rishi Sunak. They signed a declaration for a closer cooperation between the two countries in the area of financial services. It paves the way for a long awaited closer alliance between the two important financial centers and this was made possible only through Britain's withdrawal from the EU. The new agreement is intended to provide access to the market in a wide range of financial services, such as insurance, banking, asset management as well as capital market infrastructures. The agreement is based on the principle of mutual recognition in applicable regulations and includes a supervisory framework.

The first positive signals for Swiss financial centres are thus emerging, thanks to Brexit. Swiss strategists are looking ahead and are working on a new F4 concept for the future. The fusion of financial hubs such as London, Hong Kong, Singapore and Switzerland in a so-called "F4 Alliance" would result in an interesting collaboration indeed.

If Switzerland wishes to benefit from Brexit however - new legal frameworks need to be established and existing ones strengthened regardless of how negotiations are taking shape with the EU. Joerg Gasser, State Secretary for International Financial Matters recently made a similar statement at a conference: "It would be naive to believe that financial transactions will simply migrate to Switzerland just because of the Brexit".

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