The European Union (EU) must adopt a stronger oversight of banks in order to avoid a financial meltdown and cope with 30,000 finance sector jobs relocating from Britain as a result of Brexit, according to an influential Brussels think tank.
Bruegel, a European economic think tank based in the Belgian capital, published a report on Wednesday which projected the City of London could lose 10,000 banking jobs and 20,000 accountancy, consultancy and law workers to EU clients. The report estimated the total loss of this business to Britain would be worth £1.6 trillion ($1.9 trillion), or 17 percent of the U.K.'s banking assets.
"There is (a) risk of a regulatory race to the bottom among EU27 countries, leading to misconduct, loss of market integrity and possibly financial instability," the report said.
Several U.K. based banks are poised to announce at least part of their business operations are being moved from London to another European city, with countries on the continent scrambling to attract top financial officials. Bruegel anticipated Frankfurt would be the big winners from banks moving out of London with Amsterdam, Dublin and Paris all poised to make gains.
Authors of the research suggested EU cities importing banking risk from the U.K. to the continent could have a destabilizing impact on the bloc. City banks are seeking to maintain their services to EU clients as a result of the likely loss of passporting rights post-Brexit.
Attempts to relocate London-based financial markets throughout Brexit negotiations were highly complex and could ultimately pose "huge financial risk" to the financial stability of the EU, Bank of England (BoE) Governor Mark Carney warned last week.
"An influential EU think-tank's view that the City of London could stand to lose up to 30,000 finance jobs will bring further unease to the UK's financial sector, which remains uncertain over the extent of Brexit's impact," Paresh Davdra, chief executive of Xendpay, said in a note.
"Notably, the EU's financial sectors are not guaranteed to benefit Brexit without significant reform in the think-tank's view, echoing the BoE governor's own warnings to the EU and highlighting the fact that a move from the UK may not necessarily save companies from considerable financial risk," he concluded.
The analysis is founded on the assumption the U.K. would leave the single market during its exit from the EU. Prime Minister Theresa May outlined the country's plans to leave the single market in a wide-ranging speech on January 17.
Britain could be set to complete the legislative process of Brexit by March 7 which would meet the Prime Minister's self-imposed April deadline to begin divorce talks with the bloc.