Remarks of Chairman J. Christopher Giancarlo at Guildhall, London
“The Future of the City of London: Global, European Financial Center”
June 4, 2019
INTRODUCTION: Freedom of the City
My Lord Mayor, Aldermen, Sheriffs, Chief Commoner, and very distinguished guests, it is a distinct privilege to speak to you this evening. I thank Catherine McGuiness and the City of London Corporation for inviting me to speak here again in the magnificent setting of Guildhall.
I am deeply honored, indeed “chuffed”, to have received a short while ago the Freedom of the City. It is quite a distinct honor. I accept it as Chairman of the US Commodity Futures Trading Commission with compliments to my fine fellow Commissioners and the agency’s dedicated public servants.
I can’t wait to enjoy its unique privileges. I plan to wear a naked sword in public - that is as soon as I can get one through airport security. I want to drive sheep across London Bridge, just as soon as I can gather a flock. And, I look forward to being bundled into a taxi home by London’s constabulary rather than be thrown in jail if that ever became necessary.
As for the comfort of a silken rope around my neck on the gallows, if you don’t mind I’m going to save that privilege as long as I can!
I understand that the Freedom was first awarded in 1237, almost 800 years ago. It arises from the medieval practice of granting worthy citizens freedom from serfdom. That is particularly meaningful. I descend from a diverse group of Nineteenth and Twentieth Century émigrés from Italy, Germany, Poland and Ireland. They generally had one historical trait in common – European peasantry. Away from their homelands, in America, Ireland and France, and here in Britain and elsewhere, they found the opportunity to apply their brains, determination and industriousness to succeed. No one granted them their liberty; like all free men and women, they chose it for themselves.
But, now I have one thing that they never had: the Freedom of the City of London and the velum to go with it. I am indeed truly honored and grateful. Thank you.
The Future of London
This evening, I want to share with you some thoughts on the future of the City of London. By the City of London, I mean the global trading and financial services industry conducted in the greater London Metropolitan area that is centered here in the Square Mile.
I do not wish to discuss the merits or disappointments of Brexit. As a public official of a non-European country, it is not my place to opine on a European political decision. Nor will I try to handicap how or when the matter will resolve itself. Many others, including many of you, have far better information and perspectives on how Brexit might evolve.
My purpose this evening is to provide a longer-term perspective, much longer. In fact, I want to offer a vision of the future of the City of London that applies no matter the outcome of Brexit. It is a vision for the City that, I believe, will manifest itself whether or not Great Britain actually leaves the EU. And, I will extend that vision with some perspective on economic freedom that I feel is more determinative of London’s future than any political deal can be.
For now it is clear that London is shedding, and will continue to shed, a not insignificant amount of its financial service offerings and specialties to other European financial centers as a result of Brexit. Accordingly, several European capitals will likely increase their share of financial services activities that are currently conducted out of London.
Yet, despite this, I believe that London will remain one of the world’s major financial centers and Europe’s largest. The final disposition of Brexit will not change that. However, what Brexit will do is determine the degree of London’s focus on global, wholesale markets.
I agree with Peter Allen who said that, as a financial center, London has always had an “offshore” feel about it – a sense of some detachment from the EU mainland, a focus on sophisticated wholesale markets and a transatlantic orientation. He says that with Brexit those “offshore characteristics are likely to strengthen.” I think that Mr. Allen is right.
Yet, I am convinced that London will remain a major global financial center. That is because of its incomparable strengths, but also because it is ultimately not in the EU’s interest to restrict financial activities to the Eurozone. The EU needs access to markets for global capital and financial expertise that no EU city is capable of assembling any time soon. And, at the same time, London’s financial services industry needs to serve the broader European economy. In short, the EU needs the City of London, and the City of London needs the EU. I expect that sooner or later that is going to become apparent to the political classes on both sides of the Channel.
Reversion to the mean
London was founded almost two millennia ago as a center of trade and commerce. Over the centuries, London’s role as a financial center expanded from supporting regional and national interests to financing global commerce. The expansion of the British Empire in the 18th, 19th and 20th centuries made London one of Europe’s largest and most international financial capitals. In this new century, London has consistently ranked as the world’s premier financial center. It has only recently fallen to number two behind New York.
In fact, London’s current financial prominence in Europe is unusually pronounced. Of other EU cities, only 10th place Frankfurt is in the global top 20. Paris is ranked 27th, Luxembourg is ranked 30th, Madrid is 37th, Dublin is 38th and Amsterdam is 41st. The concentration of EU financial services in London is inordinate by international standards. Of the three most economically developed global regions of North America, Europe and Asian Pacific Rim, only Europe is so lopsided. North America’s six largest financial centers are all in the global top 20. Asia’s financial centers are even more prominent with its top six being ranked third (Hong Kong), fourth (Singapore), fifth (Shanghai), sixth (Tokyo), ninth (Beijing) and eleventh (Sydney).
It seems that even without Brexit, some degree of rebalancing and reversion to the global mean of financial center regional dispersal is appropriate. This may be especially so as the EU is engaged in furthering its economic union, enabling the provision of a broad set of financial services for local, national and continental EU retail and commercial customers.
The opportunity is at hand to further develop several prominent cities as EU centers of expertise and service concentration. Based on current trends, it appears that hedge funds and asset management and private equity firms are coalescing in Dublin. Commercial and investment banks are locating to Frankfurt while trading platforms, exchanges and broking operations are setting up in Amsterdam. Meanwhile, Paris is emerging as an EU center for start-ups in Fintech, RegTech and Insurance.
Nevertheless, London remains unique as a global financial center. It is the essential processing point for global wholesale markets for foreign exchange, interest rate swaps and other instruments for financial risk mitigation and transfer, which it accommodates with a unique concentration of skilled legal, accounting, broking, clearing and other professional services. Few cities in the world, let alone in Europe, are competitive with London in these activities.
Moreover, London has strong competitive advantages over other EU cities. They range from a successful underlying economy, strong human capital base and effective infrastructures for share trading, clearing and settlement. These advantages exist alongside a cosmopolitan city with a large housing and educational capability as well as well functioning transport, telecommunications and educational infrastructures.
While these advantages are often acknowledged, I wish to mention a few other advantages that are less often recognized, but just as important. They are the native use of the English language and common law, politically independent market and prudential regulation, and support for free market capitalism and hospitality to US Dollar economics.
It is a fact that today the language of global finance is English and the law of global finance is common law, either English or New York. The top four global financial centers – New York, London, Hong Kong and Singapore – all transact in English and under common law legal systems. Common law systems are generally seen to be fair, foreseeable and efficient. They readily adapt to changing commercial demands and cases, facts, and situations that were not anticipated or foreseen. Their courts reliably uphold commercial property rights. Common law systems are broadly considered more flexible, faster, and responsive than civil law frameworks.
British regulation of London’s financial services industry is also recognized as being pragmatic, sophisticated, evidence rather than policy-based and nationality-blind. It is seen to be independent of political interference, acting
decades of constructive engagement with their international regulatory counterparts, especially those in the United States, which has the world’s largest financial markets and most important reserve currency. British market oversight and prudential regulation is hospitable to markets for US Dollar-based instruments and the activities of US banks and market makers who support an increasing preponderance of EU-wide share trading. London business culture also has been consistently sympathetic to free market capitalism, the oxygen that global financial centers breathe and in which they thrive.
Notwithstanding the development of Dublin, Amsterdam, Paris, Frankfurt, Milan and Madrid as regional and specialized financial centers, none of these cities is presently poised to replace London as a global financial center. None of them can currently provide the range of sophisticated services necessary to connect the EU to the global financial system. None of them alone can replicate in sufficient scale London’s rich and diverse ecosystem of financial capability, talent and experience. I agree with Colm Kelleher that EU capital markets are too small and fragmented to justify assembling the extensive eco-system of transaction advisors, asset managers, lawyers and accountants that a global financial center requires.
Moreover, no European city outside of London combines such extensive financial infrastructure with the commercial practicality of common law, independent and practical regulation and consistent and sympathetic hospitality to wholesale finance and free market capitalism. The cultural habits of legal pragmatism, wholesale market sophistication and regulatory independence will not blossom overnight in continental EU jurisdictions, even if they were faithfully emulated.
Undoubtedly, it is appropriate for an increased amount of retail and commercial financial services in the EU to be conducted in regional financial centers, in the local language and under local law. On the other hand, institutional participants in global wholesale financial markets expect their transactions to be conducted in English, using common law in truly global financial centers like London. Any loss of London’s wholesale financial service capabilities is likely to be of greater benefit to New York, Singapore or Hong Kong, than for Paris or Frankfurt.
The EU needs The City of London
If the EU and its commercial institutions are to play a role in the global financial markets, then they must have free access to a premier global financial center. This is necessary to serve larger EU corporate institutions and sovereigns with investment capital and wholesale financial services. The EU needs to develop its capital markets, which fuel only a quarter of its commercial enterprises (as compared to three-quarters in the US). Restricting EU entities to trade only with other EU entities in the Eurozone will limit their access to global pools of capital and thwart their growth and development. Without active participation in robust wholesale financial markets, the EU risks become a largely regional economy. Without Euro-denominated instruments transacted in London’s premier trading markets alongside the US Dollar, the Euro will remain predominantly a regional currency with limited global influence.
The City of London Needs the EU
Each of the world’s major financial centers is anchored in one of the most developed economic regions of North America, Europe and Asia. The City of London needs the EU in order to remain an integral part of the European economy and avoid being largely an “offshore” European financial operation. London needs the continued ability to host the trading and servicing of Euro-denominated instruments and retain some form of “passporting rights” for its headquartered firms to provide services in the EU. Further, London needs to continue to underwrite securities offerings by EU firms and sovereign entities. Moreover, London needs continued access to a large pool of human talent and creativity to operate its financial services infrastructure. Finally, London needs to continue the business of financial services that generates over seven percent (7%) of the UK GDP.
A Deal on UK-EU Financial Services Must be Reached
So this is my message this evening: the EU needs the City, and the City needs the EU. The EU needs access to a global financial capital and expertise that no other EU location is capable of assembling any time soon. London’s financial service industry needs to serve the broader European economy.
“Fortress Europe” cannot muster enough investment capital to grow its economy and generate broad based prosperity necessary for social harmony. “Offshore island London” cannot sustain the critical contribution to the UK economy of its extensive financial services infrastructure.
What needs to be done?
Well, it seems that the starting point is a common realization on both sides of the Channel that maintaining London as a premier, global financial center tethered to Europe is of vital importance for both the EU and for Britain.
This is too important to ignore any longer. A win/win solution must be found. The current course of political fighting, brinkmanship and regulatory and legislative non-action are not helpful. It just means a flow of activity away from London to New York, Hong Kong or Singapore. It means financial regionalization of the EU and slowing of the European economy.
Leaders of business and finance from both sides of the Channel need to get together and persuasively explain to their respective political representatives why the EU and the City need each other. They need to show that European prosperity is jeopardized if the City and the EU are sundered apart. They need to encourage putting national political interests aside for the economic good of the whole of Europe and the welfare of its inhabitants.
It is time to pull out a fresh sheet of paper and draw up the right arrangement between the EU and a post Brexit London. Draw it up and then work backwards to embody it in a bespoke legal and political arrangement either alongside or separate from any final Brexit deal. The arrangement must be flexible enough to allow for the continued development of EU cities as regional and specialist financial centers, while allowing London to continue providing Europe with the services that only a global financial center can provide. Anything less, is a failure of vision and imagination.
It is fitting that we are here this evening in the glorious Guildhall, the heart of one of Europe’s oldest incorporated cities and trading centers.
Scholar Tom G. Palmer explains how the concept of liberty and the rule of law had their origins in Europe’ medieval trading centers and self-governing cities like this one. These domains provided their citizens with the liberty to come and go, a power not enjoyed by many. It included the freedom to sell goods and engage in commerce – indeed, the freedom to herd one’s sheep to London market.
Medieval cities granted freedom to make trade possible. They knew that without trade cities declined and life was wretched. They knew that liberty and freedom were a pre-requisite for prosperity. Eventually, so too were individual rights of limited government, freedom of thought, religion, speech, trade, production, and travel. Eventually these freedoms liberated the serfs of Europe, including my ancestors.
So it has always been. Cities and countries that afford their inhabitants the greatest amount of ordered freedom and the least amount of political interference attract the world’s entrepreneurs, innovators and job creators and the trade and commerce they generate. So it also remains true that broad and sustained prosperity generally occurs wherever in the world there are open and competitive markets, free of undue political interference, combined with free enterprise, personal choice, voluntary exchange and legal protection of person and property. Free markets and prosperity are natural partners in this respect.
So it remains true in contemporary Europe. Prosperity and human thriving are built upon free trade and commerce. The future prospect for the European continent, whatever the composition of the EU, remains dependent on economic growth and dynamism. This will be difficult without a premier global financial center in Europe.
The EU needs the City, and the City needs the EU. Whatever the political disposition of Brexit, we must encourage both sides to reach a suitable arrangement for the conduct of financial services between the European Union and the City of London. We must not be intimidated, but be confident.
With courage and determination, the peoples of the European continent may continue to grow their economy and create a future of untethered aspiration, a future where creativity and economic activity are a source of human growth and advancement for all of us – Europeans and your American cousins alike.
 I dedicate these remarks to my great aunt, the late Lina Cassoni, born in America of Italian parents who lived her life and raised her family here in London.
 Chloe Taylor, “UK financial services industry moves $1 trillion in assets to Europe due to Brexit, survey says,” CNBC, Jan 8 2019, at: https://www.cnbc.com/2019/01/07/brexit-uk-financial-services-sector-moves-1-trillion-in-assets-to-eu.html; Lorenzo Spoerry, “Brexit will hammer Britain’s Financial Services – and No One Seems to have Noticed,” Politics.co.uk, May 2, 2019, at: https://www.politics.co.uk/comment-analysis/2019/05/02/brexit-will-hammer-britains-financial-services-and-no-one-seems-to-have-noticed/.
 William Wright, Christian Benson & Eivind Friis Hamre, “Report: Brexit & the City – The Impact So Far (Brexit Report),” New Financial, March 2019, at: https://newfinancial.org/the-impact-of-brexit-on-the-city/.
 Peter Allen, “London’s Offshore Financial Services Future,” IFC Review, Apr 1, 2019, at: http://www.ifcreview.com/restricted.aspx?articleId=12551.
 See The Global Financial Centres Index (GFCI), a ranking of the competitiveness of financial centers based on over 29,000 financial center assessments from an online questionnaire together with over 100 indices from organizations such as the World Bank, the Organization for Economic Co-operation and Development, and the Economist Intelligence Unit. The first index was published in March 2007. It has been jointly published twice per year by Z/Yen Group in London and the China Development Institute in Shenzhen since 2015, and is widely quoted as a source for ranking financial centers. GFCI 25 (March 2019) at: https://www.longfinance.net/programmes/financial-centre-futures/global-financial-centres-index/.
 Id., GFCI.
 Id., GFCI.
 Id., GFCI.
 The rankings for North America’s six largest financial centers are: New York (1), Toronto (7), Boston (13), San Francisco (16), Los Angeles (17) and Chicago (20).
 Id., GFCI.
 See generally, Brexit Report, infra.
 See generally, Karim Sabba, “Paris Will Be the Home of Europe’s Post-Brexit Fintech Future, Finance Magnats, April 3, 2019 at: https://www.financemagnates.com/fintech/investing/paris-will-be-the-home-of-europes-post-brexit-fintech-future/.
 Colm Kelleher, “The EU Misses the Point on Finance After Brexit,” The Financial Times, 26 Apr. 2019, at: https://www.ft.com/content/766edb72-62a7-11e9-9300-0becfc937c37.
 Thomas Warren, Scott James & Hussein Kassim, “What Explains The City of London’s Ineffectiveness at Shaping the Brexit Negotiations,” LSE Brexit Blog, Apr 8, 2019, at: https://blogs.lse.ac.uk/brexit/2019/04/08/how-can-we-explain-the-city-of-londons-ineffectiveness-at-shaping-the-brexit-negotiations/
 Tom G. Palmer, Editor, “Why Liberty,” Jameson Books (2013). See also, Tom G. Palmer, “Realizing Freedom,” (2009).