John Maynard Keynes once stated:
“When I first visited…Washington accompanied only by my secretary, the boys in your Treasury curiously enquired of him – where is your lawyer? When it was explained that I had none – ‘Who, then, does your thinking for you?’ was the rejoinder….”
There is a serious note of truth within this. Lawyers have a large influence within the sphere of finance, whether they are providing professional advice on compliance and regulations, or reviewing documentation for a management buyout. Certainly the economy is, arguably, driven by the large investment institutions and financial ‘players’ who twist and change the markets. Whether they influence the markets or react to the markets is another debate. There remains the debate whether ‘proper regulation’ could have prevented the 2008 financial crisis, framed under statutory and regulatory frameworks. I recently published an article on Goldman Sachs’ plans to relocate to Germany from its London base. Lloyd Blankfein published a ‘Tweet’ on Twitter earlier last week:
Whilst many companies appear to be uncertain about the commercial implications of Britain’s formal exit from the European Union, Goldman Sachs has made the, arguably, courageous move to make its contingency plans a clear reality; re-locating from London to Frankfurt, Germany. The European markets, and global financial markets, thrive on London as an international hub. The key question is: why is the top investment institution relocating from London? Are they making a mistake? London is the top international financial centre for the same reason that English is the language of international business (although Mandarin and Arabic is becoming a language in business transactions and dealings). The UK is in Europe’s time zone, handily placed between Asia and the US; the English spotted the importance of the City’s invisible earnings to the country’s economy and have since actioned everything possible to maintain its position. The City of London is home to other key global markets: the global reinsurance market (Lloyd’s of London) and the shipping market (the Baltic Exchange – Baltic Exchange Dry Index).
Given the reasons why London is arguably the best City for the financial markets, it may well only be a matter of time before a ‘domino effect’ were to ensue: other institutions and hedge funds may relocate in the aftermath of Brexit. I personally am doubtful as to this, but one never knows. The markets are fast-paced and unpredictable. Major banks including JP Morgan and Bank of America are also to announce plans to expand operations in other European cities. Frankfurt is at the forefront to attract the financial markets and services jobs away from London, in the hope to provide meaningful employment and guaranteed access to the Single Market. The EU Bank is based in Germany as well, which makes it a geographically plausible reason for banks to have offices nearby.
Another aspect to consider is the UK’s participation in European and international debates, fora and organisations. Many policy-making bodies offer one seat per country only. This suggests that the UK will need to choose who represent its interests at different levels. The Government has recognised this challenge and have stated they are committed to enhanced cooperation to ensure consistent and coordinated representation of views outside the UK.
Given London’s history as a key City, it is extremely doubtful investment banks will move away, but rather, will expand their operational base. From a legal basis, the implications of the UK’s withdrawal for the future of commercial arbitration are much more difficult to predict. Given the uncertainty surrounding the future enforceability of English court judgments in the EU and the ability of English courts to grant anti-suit injunctions to restrain proceedings brought in an EU member state court in breach of a London arbitration clause once the UK has left the EU, the impending exit may act as a spur to the use of arbitration. Whilst London remains the most preferred seat for arbitration, Paris remains a competitor to provide greater clarity which is designed to make French arbitration law more accessible to international practitioners, and an increasing number of parties turning to arbitration in Hong Kong and Singapore.