Many of the financial institutions threatening to move out of London in the wake of the vote have yet to do so. Others have put plans in place, but all those plans are contingent on how negotiations between the UK and Brussels play out. If things go well, their plans could easily be set aside.
One need only observe what financial services companies are actually doing to know where we stand today. Should UK financial companies shift their operations to mainland Europe? If current activity is any indication, the answer is no.
Back in January, UBS and HSBC both announced potential plans to move jobs out of London once Brexit negotiations begin. The key word in both of their announcements was 'could'. In other words, the banks are putting contingency plans in place just in case negotiations start looking bad for the UK. UBS is prepared to move upwards of 1,000 of its London-based employees while HSBC says it could move upwards of 20% of its London staff to Paris.
In Germany, a prominent newspaper reported that Goldman Sachs would be moving key operations out of London to other locations in New York and the European mainland. Goldman Sachs disputed the report, saying that no final decisions have been made at this time.
So where do these three examples leave us? At the same place we were before the referendum last June. Financial services companies do what they do to make money. They are going to do business in whatever environment they find most financially attractive. If London continues to be profitable, those companies would have no incentive to pull operations out of the UK and move them elsewhere. They will move only if staying in London harms the bottom line.
A good way to look at what is happening in the UK as we approach invoking Article 50 is to boil economic activity down to its primary fundamentals: the buying and selling of products and services. Financial services companies exist only because economies exist, and those economies exist because people buy and sell things. In light of that, how are things looking in the UK following the referendum vote?
Simply put, the economy keeps rolling along without interruption. Take a visit to London, and you will see that the city is as busy as ever. Restaurants are still serving meals, stores are still selling goods, and service industries continue to provide the services consumers and businesses rely on.
Much of the fear surrounding the UK's financial sector has to do with us leaving the single market of the EU. Former Bank of England Governor Mervyn King believes a hard Brexit is the best way to go. He says that agreeing to remain in the single market, along with Norway, would mean having to accept free movement among EU citizens. Likewise, choosing the customs union option now utilised by Turkey would prevent the UK from striking its own trade deals.
The goal is to continue business as usual while freeing ourselves from the burdensome regulatory environment of the EU. Since Brexit is not going away, the debate now seems to be whether we can actually pull it off. King believes we can. He says the UK stands to gain a lot more than it loses with a hard Brexit and complete economic independence.
Perhaps the strongest piece of evidence in favour of financial institutions remaining in London is the meltdown that was not. In other words, Remain proponents were predicting a meltdown of historic proportions in the weeks and months following the referendum if British voters decided to leave. We know how the vote turned out, and we also know that the predicted meltdown did not occur. It probably won't, according to the Centre for London's Richard Brown.
Brown recently told the Guardian that he believes London will retain its financial sector dominance post-Brexit regardless of how negotiations go. He thinks terms may be less favourable than we would like, but that most of the financial services companies now based in London will remain.
Part of Brown's optimism is directly related to the complex interconnectedness of London's financial markets and the difficulty of untangling it all. But more importantly, Brown says that financial institutions do not have anywhere else like London to go. He does not believe Frankfurt, Paris or Dublin can match what London has to offer – even if Brexit negotiations do not end up being ideal.
Quite to the contrary, the big winner should companies start leaving London would likely be New York. That would not be good for either London or the European mainland, and it's reasonable to believe that Brexit negotiators are well aware of this reality. They are not likely to create economic conditions that would bolster New York while leaving European cities out of the loop.
Yes, financial services companies should be putting contingency plans in place in case these are necessary. But the companies should not be unequivocally saying now that they will be leaving London after separation is complete. No one knows what the future will bring until it arrives. To threaten to leave London now is to be counterproductive and to risk unnecessarily damaging business.