London's powerful financial hub: EU exit would be nightmare

Jamie Dimon, chief executive of U.S. banking giant JPMorgan Chase, underscored those concerns last week when he appeared alongside U.K. Treasury chief George Osborne to make the case for remaining part of the EU single market, which with 500 million people is the world's biggest economy. In case of a British exit, or Brexit, from the EU, JPMorgan would have to move staff to the continent to ensure it could continue to serve clients who want to invest there, Dimon said. Other global banks wit

h customers in the rest of the EU would be in a similar situation.

"A vote to leave would be a terrible deal for the British economy," he said. "At a minimum, a Brexit will result in years of uncertainty, and I believe that this uncertainty will hurt the economies of both Britain and the European Union."

Britain has been the gateway to the EU for many banks, brokerages and fund managers for decades. In addition to having a trusted legal system and institutions that operate in English, the language of international finance, London is in the right time zone to access most of the Earth during its working day and has a reputation for delivering top-notch financial services. The industry is also surrounded by an ecosystem of expertise — lawyers, accountants and consultants — to support it.

Some 60 percent of all European headquarters of non-EU firms are based in the U.K., according to TheCityUK, which lobbies on behalf of the financial industry. The U.K. hosts more headquarters of non-EU firms than Germany, France, Switzerland and the Netherlands put together.

London's advantages are such that people in favor of leaving the EU, such as Peter Hargreaves, co-founder of brokerage firm Hargreaves Lansdown, think it will retain its luster no matter what. He poured scorn on the notion that it could be easily replicated.

"In addition to the cost of building the infrastructure for a rival to the City of London one has also got to work out whether people will want to live in another financial center," he said. "They certainly wouldn't want to live in Paris —although Paris is a pretty city — purely because of the tax rates, and in all honesty they wouldn't want to live in Frankfurt because actually there isn't even the housing there to house them. People want to live in London."

London's financial sector has complained about a number of EU rules, such as limits on bankers' bonuses and an attempt to impose a tax on financial transactions.

Those considerations, however, are largely trumped by concerns that leaving the EU would make access to the other 27 EU countries more difficult, many analysts say.

The principle of "passporting" currently allows any firm registered in one EU country to operate in any other member state without facing another layer of regulation. It's the same principle that allows exporters to ship their goods to any EU country free of tariffs. Losing that freedom is a particular concern for the many foreign firms who use London not only as a financial hub but as an entry point into the EU.

"I can treat a customer in France or Germany or Italy exactly the same way I can treat a customer in Birmingham. That is extremely rare," said Phillip Souta, head of U.K. public policy at the global law firm of Clifford Chance.

While the U.K. could probably negotiate a new arrangement for trade in goods, it would be much more complicated to hammer out a deal on services, said Angus Armstrong, chief of macroeconomics at the National Institute of Economic and Social Research. The situation has no precedent — no country the size of the U.K. has ever left such an integrated economic union — so the outcome of any talks can't be predicted.

And anything that curtails Britain's financial industry has implications for the U.K. economy as a whole, not just the bankers who were pilloried for taking home million-pound bonuses while they fueled the global financial crisis.

TheCityUK notes that the sector supports the economy by providing financing for