Frankfurt as a financial centre andBrexit

View of the Association of German Banks

Michael Kemmer

Frankfurt am Main

18 August 2016

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The private banks and the Association of German Banks regret the result

Despite all the uncertainty, we assume Brexit will happen

A divided country

Clear majority for Remain in

- Scotland (62%) and

- Northern Ireland (56%)

Around 60% of Londoners also voted Remain

Brexit voters are grey-haired

18-24 year olds: 75% Remain

25-49 year olds: 56% Remain

50-64 year olds: 44% Remain

over 65: 39% Remain

Majority for Remain Majority for Leave

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Association of German Banks’ position

Possible exit date

No quick solutions; considerable

uncertainty in the next few years

Life after Brexit as yet unclear:

privileged access to EU likely, but

without full passporting

Keep EU/UK relations as close as possible

Ensure a level playing field and reciprocity

Make the Frankfurt financial centre London’s continental EU partner

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Frankfurt highly suitable as an EU hub

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Financial centre of the eurozone

Frankfurt is the banking and financial centre of the eurozone Efficient stock market, which will become even more

important after merging with the LSE Centre of fintech innovation; bridge to startup capital Berlin

Banking supervision

Frankfurt is the seat of the European Central Bank, the SSM and EIOPA and thus the most important centre of monetary and financial policy in the European Union

Location factors

Major centre of financial research and training Good transport and digitalisation infrastructure Cost of living comparatively low by European standards; office

space also comparatively inexpensive and readily available

Sound legal environment

Stable political system Governed by the rule of law with functioning legal remedies Legal certainty and smoothly functioning administration

Dispute resolution in labour law

Dispute resolution is swift, inexpensive and predictable No significant “suing culture” Codetermination does not hamper managerial decision-making

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Political commitment

RegulationAdministration

Clear commitment on the part of the federal and

regional governments, the city of Frankfurt and the financial industry to promote Frankfurt as the financial centre of the European Union

Removal of “home-grown” regulatory obstacles

Administrative support for Frankfurt as a financial centre

Prerequisites for Frankfurt’s positioning

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Five proposals for administrative support of Frankfurt as a financial centre

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EBA Relocate the European Banking Authority (EBA) to Frankfurt

Language

BaFin, the Bundesbank, and also regional and local authorities should offer information and handle applications in English; establish a network of dedicated contact persons

Relevant German laws (such as the German Banking Act) should be available in English

More administrative processes should be conducted in English

Supervisors

Ensure BaFin has sufficient personnel resources to deal quickly and unbureaucratically with applications for permission to provide or expand financial services

Location factors Make it easier to set up new businesses and relocate

international staff

Fintechs Strengthen collaboration between the fintech centres of Frankfurt and Berlin

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Five proposals for removing home-grown regulatory obstacles

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Legislation governing terms and conditions

of business

Further enhance personal autonomy by lifting the applicability of general business terms and conditions to commercial transactions

Bank levy

Remove the ban on the tax deductibility of the bank levy (in place since 2010 in Germany and since 2016 for contributions to the Single Resolution Fund)

Financial transaction tax

Abandon plans to introduce a financial transaction tax at global, European or German level

Accounting

Allow companies to prepare individual financial statements in accordance with IFRSs only, without the need to prepare German GAAP accounts as well

Venture capital Ensure transparent taxation of private equity investors

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Comparison of London, Frankfurt and ParisA brief overview

London Frankfurt Paris

Population(2014; in million)

8.5 0.7 2.2

Foreign banks as a percentage of all banks(%; ECB definition, as at end of 2015)

51.1 37.9 28.4

Financial centre ranking(GFCI1, 2016)

1 18 32

Ease of Doing Business Index(country-specific, 2015)

6 15 27

Tax burden ranking(country-specific, 2015)

15 72 87

Market value of stock exchanges(market capitalisation in €bn, 2015)

133 15.7 3.34

Share turnover(EOB trades in €bn, 2015)

2,4033 1,410 1,8824

ETF turnover(in €bn, 2015)

388.33 198.1 162.44

Sources: Helaba, World Bank, WFE, Z/Yen

1 The Global Financial Centres Index (GFCI) of the Z/Yen think tank ranks the competitiveness of financial centres based on indices analysing the business environment, development of the financial sector, infrastructure, human capital and reputation and also on responses to a survey of financial experts.2 The World Bank’s Ease of Doing Business Index ranks economies from 1 to 189 on their ease of doing business. A high ranking means the regulatory environment is more conducive to starting and operating a local firm. 3 LSE with Borsa Italiana4 Euronext, which operates in Amsterdam, Brussels, Lisbon and Paris

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