Do you believe in what the European Banking Authority says, or in what the European Central Bank says? Maybe you're ambivalent, but if you're currently sitting in a trading job in the City of London, the conflicting pronouncements of the two entities have big implications for your location in future.
If you like living and working in London, you will probably want to side with the European Banking Authority (EBA). Andrea Enria, the head of the EBA, which describes its purpose as 'prudential regulation and supervision across the European banking sector,' told the Financial Times last month that back-to-back trading, which would allow trades to take place and risk to be managed out of London, but trades to be processed in the European Union, should be permissible after Brexit. Back-to-back trading is a “backbone” of global finance, said Enria. Local European risk exposures do not need to be managed locally, he added.
Conversely, if you want to get out of London, you will want to side with the European Central Bank (ECB). The Frankfurt-based central bank, which also has a say in banking supervision and European financial stability, has reportedly written to banks asking them to limit their use of back-to-back trading models by 2022.
Under the EBA's approach, trading jobs will stay in London. Under the ECB's approach, trading jobs will move. As banks contemplate the worst case scenario, the ECB's pronouncements are gaining precedence and traders in London are starting to panic.
"This week, we've suddenly had a big increase in enquiries coming from traders who are concerned that their jobs will move to Paris or Frankfurt," says Russell Clarke, a partner at Figtree Search. "The presumption until recently had been that most traders would stay in London, but this has changed. Divisions of traders are now being put on standby that their jobs might move."
Until the ECB's pronouncement, some traders seemed sanguine about their chances of ending up elsewhere in Europe. "It's just sales that are moving," one senior credit trader told us last Wednesday, speaking off the record. "The only reason to move to Frankfurt is so that you can get an easy job as a managing director booking the trades made in London," he added. "- It's a kind of retirement post."
Not any more. While banks are being incredibly secretive, even internally, about their Brexit plans, another senior trader says the fear is that up to 75% of London trading jobs will ultimately have to move. The salespeople and support staff who go first could yet have company.
The prospect of shifting entire trading floors is seemingly causing ructions in banks, which had based their Brexit accounting on the supposition that only a handful of trading jobs would need to be moved to Paris or Frankfurt, with the bulk remaining in London. If most trading jobs have to migrate, costs will increase dramatically. In turn, insiders say this could threaten banks' current plans for more distributed sales offices, with local salespeople on the ground in Madrid and Stockholm as well as Paris and Frankfurt. - To save costs, European staff may yet need to be aggregated in a few big continental European hubs.
Unfortunately, forcing people to move to Paris or Frankfurt risks hiking the costs of Brexit even higher still. Headhunters say most junior and mid-ranking staff in London are happy to return to their countries of origin. French markets professionals are generally happy to return to Paris and German markets professionals are generally happy to return to Frankfurt. But Swedish salespeople have a preference for Stockholm and Dutch salespeople have a preference for Amsterdam, and will require financial inducements to move elsewhere.
The upshot is that the potential costs associated with Brexit are rising dramatically. Similarly, the complexities of staff relocation are occupying increasing amounts of time for banks' HR professionals, who are being forced into negotiating tailored relocation packages for some senior staff. Meanwhile, salespeople and traders are seeking professional advice on their ability to resist being transplanted.
"I've spoken to a lot of people whose roles are potentially going to be relocated," says Dan Begbie Clench of City of London law firm Doyle Clayton. A bank's ability to force an overseas move will depend upon the wording of the employee's contract, he adds (and headhunters say banks are feverishly adding more open-ended clauses to new contracts). But whatever the contract wording, Begbie Clench says it's implied that the employer must act reasonably: "Even if there is an open-ended mobility clause, we would still need to assess whether an employer is acting reasonably. An employee could make a good argument that an enforced relocation overseas would not be enforceable and that their role had been made redundant."
Some London markets professionals are seemingly deciding that redundancy is the best option. Another London fixed income headhunter, who says he's now spending half his time working out of Paris and Frankfurt, says senior people are digging their heels in and waiting for redundancy payments rather than moving to Europe. Some then plan to look for a job in Europe in the future as banks get into bidding wars over employees willing to relocate. Clarke suggests that this is a risky strategy, but notes that compensation is already rising for markets professionals in continental Europe: "People who are going to Paris from London are moving on flat salaries. This is putting pressure on local pay."
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