If you want a senior banking job in Europe right now, you'll probably need to come to London to find it. Come 2019 that could all change. After Brexit, it's starting to look like analysts, associates and VPs could be in London and MDs could be located in Paris, Frankfurt and Dublin.
So says a new document from the European Securities and Markets Authority (ESMA), the Paris-based regulator of Europe's securities markets.
After Brexit, ESMA fears banks will try to minimize disruption to their operations by simply opening "letter-box offices" in EU-regulated jurisdictions whilst keeping the bulk of their activities in London.
ESMA doesn't want this to happen and has already begun stipulating the conditions under which so-called "outsourcing" to London will be impermissible after 2019.
"As a general principle, EU market participants can only outsource or delegate tasks or functions [to the UK], but not responsibilities," it says in today's document, "...the ability to direct and control outsourced or delegated functions must always be retained by the market participant initiating the outsourcing or delegation [within the EU]."
Put simply, ESMA says "tasks and functions" concerning European clients can still take place in the UK after Brexit, but the responsibility for those tasks and functions will need to lie within the EU.
Peter Snowdon, a partner specializing in financial regulatory law at Norton Rose Fullbright in London, says it's early to draw conclusions, but that if this is indeed the arrangement ESMA wants it should come as no surprise: "This would not be dissimilar to the way all outsourcing works. Under most outsourcing arrangements it’s common to outsource the function, but not the decision making in a strategic sense."
The result, however, could be a dramatic change for the banking job market.
Ever since the mid-2000s banks like Goldman Sachs have had very few managing directors (MDs) in Frankfurt despite having hundreds of junior staff there. Continental European offices have been run out of London. Post-Brexit, London could be run out of Continental Europe.
It's not just the senior "responsible" staff that ESMA wants in Paris and Frankfurt. Today's document also specifies "important" activities and functions that ESMA says should not be located in outsourced centres (ie. London). These include: internal control functions, IT control infrastructure, risk assessment and compliance functions. The whole of the middle office, basically. In a worst case scenario, London will be left to front office juniors and VPs.
The good news for senior bankers who want to stay in London is that ESMA's tentacles aren't that long. New Financial, a think tank, says only a third of the business currently conducted in the City of London relates to the European Union and that only a fifth takes place under current "passporting" arrangements that allow banks based in the City to operate in Europe despite not being directly regulated there. ESMA may only be able to influence between 20% and 33% of jobs in the City, therefore.
The bad news is that banks are going to want to manage their costs. As Richard Gnodde, chief executive of Goldman Sachs International, said in a recent podcast, Goldman Sachs doesn't want to segment its trading operations between London and Europe and doing so will increase costs. In a post-Brexit world, therefore, will banks really have two layers of senior management in Europe and in London? Or will they opt to run London as an outsourced centre full of junior staff taking orders from Europe. If ESMA has its way, it looks like the latter.