Is the City of London Losing Its Crown? Europe’s Push for Financial Autonomy

The EU’s Strategy: Capital Markets Union and Strategic Autonomy

The EU has long aimed to strengthen financial hubs in Frankfurt, Paris and Amsterdam through the Capital Markets Union. Post‑Brexit, this ambition has merged with a broader strategic autonomy agenda designed to reduce reliance on non‑EU infrastructure.

Strengthening EU capital markets

The EU is working to harmonise capital markets and remove regulatory fragmentation. Key proposals include:

• Overhauling listing rules to help smaller companies access public markets
• Narrowing differences between national insolvency regimes
• Creating a pan‑EU database of corporate financial information
• Developing a consolidated tape of capital market transactions

These reforms aim to increase liquidity, improve cross‑border investment and make EU markets more competitive.

Reducing reliance on London

EU officials have become wary of systemic risks linked to financial infrastructure outside EU supervision. As a result, the EU is pushing to relocate euro‑denominated derivatives clearing from London to EU territory.

To achieve this, regulators plan to:

• Increase bank capital requirements for firms conducting EU business
• Introduce rules encouraging foreign banks to maintain substantial physical operations and staff within the EU

This is designed to shift financial activity into the bloc and reduce dependence on London’s clearing houses.

Tangible Losses for the City of London

Since the UK left the EU, several financial institutions have moved operations to the continent.

Asset migration and corporate relocation

• Around two dozen major firms have announced plans to move £1.3 trillion in assets to the EU.
• Euronext is relocating its data centres from Essex to Bergamo
• Approximately 3000 UK employees have moved to Paris since the Brexit vote, with wider Brexit‑related relocations reaching about 8000

US firms choosing Paris

US institutions have increasingly selected Paris as their EU base.

• JP Morgan is increasing Paris staff from 250 to 800
• Citadel is expanding its Paris team

Amsterdam overtakes London

Amsterdam has surpassed London in share trading volume, becoming Europe’s largest trading venue.

These developments show that the EU’s efforts are having measurable effects.

Why London Remains Resilient

Despite these shifts, London continues to dominate many areas of financial activity.

Market leadership

London remains Europe’s leader in:

• Currency trading
• Derivatives trading
• Clearing
• Insurance
• Private equity
• Equity raising
• International banking and borrowing

The EU extended permission for European banks to use UK clearing houses until 2025 to avoid market instability. Around 90% of euro‑denominated derivatives are still cleared in London.

Employment and economic scale

More than 400 thousand people work in London’s financial services sector. Brexit‑related job losses, although significant, are far lower than early predictions of tens of thousands. The UK’s financial markets represent a portion of GDP twice that of the EU.

Why London Refuses to Budge

Three factors explain London’s continued dominance.

1. Deeply entrenched infrastructure

London’s financial ecosystem has developed over decades. Moving derivatives positions can cost several billion euros. Even firms that have shifted assets to the EU still rely on London’s complex back‑to‑back structures.

2. Limited political momentum in the EU

Although the EU has made progress, political focus has been inconsistent.

• The Capital Markets Union was only briefly mentioned in the 2021 euro‑summit statement.
• It was absent from Ursula von der Leyen’s 2021 State of the Union priorities.
• Banking union reforms remain stalled, including unresolved issues around pan‑European deposit insurance.

Fragmentation continues to hinder rapid progress.

3. Concerns about market stability

EU regulators fear that forcing too much activity out of London too quickly could destabilise markets. This has slowed the pace of transition.

The Future: Slow Decline or Structural Shift?

The EU is preparing further measures.

• Foreign banks may be required to convert branches into fully capitalised subsidiaries.
• A larger proportion of EU derivatives trades may be required to clear through EU clearing houses.
• Permission for EU banks to use UK clearing houses will end after 2025

London is moving from being Europe’s singular financial centre to one of several major hubs. The decline is real but gradual. It may take years, possibly decades, to fully unfold.