There is no denying that Brexit has promoted the growth of financial services in Europe and the emergence of new financial hubs in Frankfurt, Luxembourg, Paris and Dublin as companies make moves to ensure they have workable footprints in the EU after the UK finally bids a fond farewell.
It is our business to monitor all areas of the market and it seems that all the attention on Brexit has masked other contributing factors at play that would have impacted Europe’s growth regardless.
Asia has been investing heavily in European assets
A Bloomberg report showed that China has bought or invested in European assets estimated at a conservative $318 billion over the past 10 years – 45 percent more than in the U.S. during this time. While the UK accounts for $70 billion of this, there has been significant known investment in German technology, Scandinavian carmakers, Swiss energy producers, Real Estate in Paris and even the purchase of Greece’s largest port in Piraeus.
While Germany, France and Italy are calling for controls on China’s advances with an EU-wide investment screening mechanism, countries such as Greece, Portugal and Cyprus are enjoying the much-needed injection of capital.
Derek Scissors, China researcher at the American Enterprise Institute quite rightly notes, ‘the money will flow to where it is most welcome’. So, for now Europe is marked as a top destination for Chinese – and increasingly, Middle Eastern investment.
If Europe follows the US and Australia’s lead and puts investment control in place, it is likely to reduce the flow but for us, spark a new wave of compliance hiring to manage it.
Competitive taxation has been drawing investors in
Germany, Switzerland and Austria have a strong inflow of foreign holding organisations who are using tax and location advantages. Switzerland for example is in the top third of the most competitive corporation tax rates in the world, only being outplaced by off-shore domiciles.
Development of regulation has been driving hiring too
The increasing regulation in the financial services sector is not just a burden, it gives firms a chance to reshape their structure and processes to be more transparent and efficient. This change is the main driver of hiring in and many are seeking the support of specialist executive search firms to help find and attract the best compliance, risk and legal talent for the job.
London is still thriving
If Brexit was such an all-encompassing influence, we wouldn’t be seeing such a significant number of start-ups, investment and indeed hiring in the UK. The appeal of the UK consumer is so great, some companies are making moves into the UK to ensure they can still reach their British customers.
There is of course a risk that many would have preferred not to have of more foreign investors moving assets out of the UK if negotiations are unfavourable. We anticipate that more of the bigger companies will move to Paris, Dublin and Frankfurt post Brexit but London will remain the financial centre.
New doors are opening. We believe there will be significant increases in FinTech, Crypto, Transactional Banking and Asset Management. Arab, Chinese and other big investors will also open specialist hubs with high economic impact, creating new opportunities for the country.
We could be witnessing the emergence of a trend for further growth in Europe
We mustn’t forget that financial services have been expanding into Europe for over 15 years, long before Brexit even hit the agenda. Back then it was the movement of customer service operations to take advantage of lower workforce costs and overheads.
As these original locations grow and demand normalises costs, these functions are having to extend further out to new locations such as the Czech Republic, Poland, Croatia, Serbia and Hungary to be able to benefit from lower cost jurisdictions once again. It will be interesting to see if these countries develop into financial back office strongholds of the future.
How can we help?
Our network, reach and market knowledge are such that we are accommodating every unique strategic move, placing top quality talent into financial services across Europe and the UK (and indeed the world from our global offices). If you would like to utilise our services to strengthen your team please get in touch.
Ed Wacher, Associate Partner, Compliance
Tel: +44 (0) 20 3889 5756
Special thanks to Tomas Hundegger for his contribution of invaluable market insight and expertise to this article.