Porter Novelli

Most industry observers are in agreement of the need to avoid jumping to the conclusion that the City of London’s financial dominance in the region is over. The immense and complex platforms and processes that are in place to trade stocks, bonds and derivatives would take years not months to unravel But it would be irresponsible for the leading financial services firms not to draw up a detailed plan to secure their clients, market share and –yes- their talent in the event of future investment in London becoming too risky and complex from a regulatory standpoint. And that exactly what seems to be happening as we speak: plans for eventual moves.
Yes it is too early for Paris to claim being the best destination to trade stocks and for Frankfurt to trade bonds –as per the most common market commentaries-. But money normally runs faster than market rumors, with the fuel of fear. And that fear is based in some real threats:

  • Forecasted volatility in the trade of dollar and euro vs. sterling. This adds difficulties to the treasury management of cash at many companies.
  • Increase of legal and regulatory expenses for the international companies based on UK.
  • Potential moves of the trading platforms to countries directly linked to European Central Bank –based in Frankfurt- and EU institutions, searching for stability.
  • Eventual, limited impact on UK´s consumer spending if the sterling falls against dollar/euro.

It is not that the biggest banks and investors in the world now trust more on France or Italy than in the UK. Neither do theyrefuse toacknowledge the strength of the UK´s industrial and technology sectors. The underlying issue here is the end of the principle of “passporting”, which had permitted banks to access the European single market without restrictions in a number of lucrative financial activities e.g. foreign currency trading, sovereign bonds, investment banking, insurance and asset management. And because of that, the biggest financial players in the world had been heavily accumulating employees in London over the last 30 years.

Critically, depending on the final content of the new UK-EU economic treaty, it could STILL make sense for those activities to stay in London. However, many of the incumbents will be asking themselves: Why take that risk? In other words, the European Central Bank and the EU Commission could have a deep influence on the economic side of the UK-EU treaty, and not precisely in favor of the City´s status quo.

From the communication and reputation point of view, what the CEOs and the biggest financial players fear the most is that nasty question being asked by activist investors or big mutual funds in an ugly shareholder meeting. That´s why -most likely- the communication strategy will try to secure a balance between two axes:

  1. Before adopting bold HR decisions, wait a reasonable time to collect official data from EU and UK government on the new treaty and economic agreements with the EU.
  2. Protecting shareholders value and board of director’s responsibility on a nimble, diligent reaction to the news.

As all the analysts stress that negotiations will last two years, it will be a must for the big corporate and financial institutions to put in place a contingency and communication plan, (starting by the employees first) to get ready for every scenario. The financial industry, as many other sectors, lives in a constant war for talent. So, it is in the interest of shareholders and executives to bolster their reputation as the place-to-be in turbulent times.