The 2016 Brexit vote led to angry divisions among the UK’s Eurosceptics and Europhiles. Now the UK’s split with the European Union is dividing finance workers at some of the country’s largest banks and trading firms.
European and UK executives at several London lenders have been locked in heated battles over their internal responsibilities regarding long-standing client relationships since the UK transitioned into Brexit on 1 January, according to conversations with seven bankers, traders and their advisers.
Since the end of the transition period on 31 December, many in the City are scrambling to understand how Brexit will change the way they did their jobs. Amid the chaos, bosses at some London banks ordered their UK-based staff to hand over management of European clients to their colleagues in the bloc, according to people familiar with the matter.
Several European colleagues at the firms in question have jumped on the opportunity to grow their clientbase, those with knowledge of the situation said, leaving their UK peers battling to retain some influence over hard-won relationships.
A senior banker at one bulge bracket firm in London said their employer had banned UK-based execs from naming themselves as managers to EU-based clients on their internal system once Brexit came into effect this month, forcing UK staff to allocate their European colleagues as relationship managers of certain clients.
Since handing over one particularly coveted European client to a colleague in the bloc, the banker said, he had been getting aggressive calls from his EU counterpart demanding to be included in all meetings and calls with the client in future.
“It’s infuriating,” the senior banker said. “I discovered the client. I put in all the work and now I’m expected to just hand them over to someone else?”
A Frankfurt-based banker, meanwhile, was dismissive of his UK peers’ complaints. “We are bankers. We sit in front of a computer screen all day long, watching what’s happening. What did these people expect? In my view it’s a very naive reaction.”
“Of course there’s friction,” Dr. Michael Huertas, the Frankfurt-based co-head of the European regulatory practice for financial institutions at law firm Dentons said, adding that the friction could be felt both by those in the UK having to hand over client management to a European counterpart but also by European colleagues having to navigate new client relationships and much closer contact with some of their UK-based co-workers.
The post-Brexit rules have also caused unrest among staff on the trading floor.
A London-based hedge fund trader noted that their sales coverage at one of the large investment banks had already expressed disquiet about having to hand trades and therefore commissions over to European colleagues.
An equities broker in London told FN that he had been informed by his employer that post-Brexit he couldn’t trade for some of his largest continental clients as he wasn’t based in Europe. They were still allowed to talk to these clients, but the taking and execution of orders would be handled by a colleague in another office.
This raised concerns over the level of the service the clients would receive as the relationship had been forged over a number of years and required an element of “finesse”, they said.
European colleagues also had their own customers to worry about, so this was not an ideal situation, they added. The broker said that they were not allowed to “book out” trades for these clients, as the confirmations needed to come from a European entity.
A second broker in London said that as of 31 December cross-border activity involving French clients would now be handled by colleagues in Madrid.
The situation has been made more galling, one banker said, by the lack of a consensus across the industry on the repercussions of the Brexit deal. Peers at rival banks weren’t being forced to hand over clients, the banker complained, which was fostering a feeling of injustice across their firm’s London office.
A senior executive at a US bank in London said his team was continuing their work largely as normal. “Being forced to hand over clients sounds a bit awkward to me. We all work together as a team. If you have to assign a new client cover, then the old one becomes redundant,” he said, adding that the “chaperoning principle” where a European colleague joins calls or meetings with EU clients was preferable.
“We’re going to continue to work with clients as a team until someone tells us we can’t,” he added.
Huertas said that “workable models” for compliant post-Brexit client management would emerge “as the dust settles”.
Some finance firms were looking to make changes to compensation packages “in terms of trade credits and origination credits”, Huertas said, to foster collaboration.
“As we move forward those that have gotten it right in terms of saying it’s not London versus non-London centres… will do very, very well,” Huertas said. “Because at some point the clients that they service will pick up between those [firms] where this cross Brexit border cooperation works to the benefit of the clients.”
The UK-EU trade deal has avoided large-scale trade disruption but was notably lacking in provisions for financial services. Prime Minister Boris Johnson conceded it “perhaps does not go as far as we would like” for the City.
Despite assurances for talks about better market-access arrangements soon, lawyers say firms may have to spend years in limbo.
In the meantime, trades are flowing elsewhere and many London firms are now scrambling to adjust – booking trades through eurozone entities, routing business to colleagues in EU branch offices or moving staff to Europe.
The reality of Brexit has “been a bit of a wake-up call” for some, while others have implemented “possibly questionable” workarounds, Neil Robson, a London-based partner in the financial markets and funds practice at US law firm Katten Muchin Rosenman told FN in early January.
The European Securities and Markets Authority, the EU’s financial regulator, subsequently issued a stern warning to City firms adopting «questionable practices» to circumvent the repercussions of Brexit.
In a 13 January statement, Esma said that «the provision of investment services in the EU without proper authorisation» leaves firms open «to the risk of administrative or criminal proceedings, for the application of relevant sanctions».