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Is Europe ready for the post-Brexit challenge?

Protectionism and ‘strategic autonomy’ concerns are on the rise


David Burrows

Europe needs to build trust post-Brexit, push the case for capital market participation post-covid and continue to lead the world in ESG investing.

At least that was the consensus during a recent debate at the Association of the Luxembourg Fund Industry (Alfi) conference entitled: ‘Europe – ready to handle Financial Services post Brexit?’

Nicholas Mackel, chief executive of Luxembourg for Finance, suggested the election of Joe Biden in the US would likely shift the balance in the eleventh-hour negotiations in favour of a Brexit deal – though he conceded talks might go right to the wire.

“I think the prospect of the UK slamming the door has dramatically reduced.”

He said that, while an agreement would not directly affect financial services, a deal would benefit the sector because of the atmosphere it creates.

“It is difficult to build bridges if the UK fails to agree a deal. If a deal is achieved, then bridges can be built – first and foremost equivalences.”

He added that continued cooperation could include structured dialogue between EU and UK regulators.

Mackel said if no deal was reached then it might take two years for the acrimonious relationship between the EU and the UK to thaw.


Chris Cummings, chief executive of the Investment Association (IA), said that over the last four years there had been huge changes from a geopolitical perspective – in Europe, US and China – with a tendency for countries to look more inwardly.

He stressed that the IA has long argued against protectionism and that the UK financial services industry had always supported a policy of putting client interests first, fostering good relationships within Europe and attempting to depoliticise discussions where possible.

“We keep reminding policymakers that the greater adherence to international standards; the better businesses will be able to do what they are supposed to do – look after their clients.”

“We need all cylinders of the engine firing in order to focus on European growth,” Cummings added.

Sheila Nicholl, head of public policy at Schroders, agreed with Cummings that there were concerns about protectionism in Europe and countries turning in on themselves – pointing to the phrase ‘strategic autonomy’ that has been used increasingly.

Nicholl said she thought dialogue was still happening between regulators behind the scenes regardless of what is happening in the political world.

“Potentially, I think the trust is there between regulators but if there is no agreement and a degree of acrimony it will take time for that trust to rebuild again.”

Coming out of Covid

The Alfi debate participants were asked what role capital markets (and CMU) could and should play in the economic recovery of businesses as covid measures come to an end.

According to Nicholl, the crisis should have already focussed minds on the importance of strong capital markets across Europe.

“It is probably too late for CMU which is why it is going to be important to maintain strong cooperation between the EU and the UK because I think the EU will still need capital market participation if it is to come out of the crisis.”

She added: “There is a lot of talk of moving debt to equity in the new world and there is an important role for us as fund managers in channelling savings into the economy.”

Nicholl argued that it was the fund industry’s role is to identify the culture change necessary and to say to investors: ‘yes, you do need to take some risk but we can provide diversification and well-regulated products to reduce that risk’.

She said investors needed to be strongly encouraged to take money out of bank accounts in order to support the economy.

Essentially creating a virtuous circle where investment is essentially in the jobs that support not just the individual themselves but their friends, colleagues and families.

Cummings agreed with Nicholl that lessons have been learned in recent years regarding the role of capital markets.

“One of the key lessons we learned from the financial crisis was that Europe needs a richer, deeper capital market. In Europe we were over-banked and that was one of the constraints on growth. And this was one of the reasons why the US pulled out of recession following the financial crisis much faster then we did.”

He added:” At this moment in time, policymakers need to focus on rebuilding their economies using structures that they know work, turning to capital markets, understanding the role our industry can play but not interfering with issues like delegation. Building on the success of the investment management industry is such a standout conclusion for any policymaker to draw that it almost shouldn’t need saying.”

Being at the heart of the green economic revival should be identified as another positive for the European fund industry over the coming years, according to Cummings.

“Europe has a global leadership position in Green investments – way ahead of the US.”

He added: “We are seeing £1bn (€1.1bn) a month coming into ESG with a rate of performance that leaves non-ESG funds standing. The industry has a great story to tell here.”