Frankfurt am Main will be the future EU location of the finance companies Mizuho Securities, Daiwa Securities, Sumitomo Mitsui Financial Group and Nomura. But why are foreign banks deciding in favour of Frankfurt? And what are the chances and challenges presented by moving? Here’s an interview with Dr. Oliver Wagner, Managing Director of the Association of Foreign Banks in Germany (VAB).
Why are foreign banks coming to Frankfurt?
Dr. Oliver Wagner: There’s a whole bundle of motives involved when banks choose Frankfurt. From the regional perspective, it’s not only the central location of the Rhine-Main area in the heart of Germany, the good transport connections thanks to the international airport and the central railway station with its ICE links, and the motorway network, it’s also the comparatively inexpensive office rents and the comprehensive IT infrastructure that count. This is supplemented by the closeness to the German stock exchange, the just under 200 banks who are represented in the Frankfurt region – including around 160 foreign banks – with their 70,000+ employees, and the presence of diverse consultants, auditors and law firms. Independent of the location Frankfurt, another decisive factor is certainly the effective, reliable and open-minded supervision of the Federal Financial Supervisory Authority (BaFin) and the Bundesbank, which also provides for dialogue and, to a major extent, documentation in the English language. That’s hardly an exhaustive list, but it’s worth stressing that Frankfurt has never promised tax reductions or other benefits and privileges, which are incentives we have certainly heard from other locations.
What are the greatest challenges faced by a company that is now relocating its EU headquarters in the wake of Brexit?
Wagner: It’s impossible to give a general answer to that question since it very much depends on the available structures that one can build upon. Banks not active in Germany before have to apply for appropriate authorisation from the supervisory authorities, and experience shows that can take around a year. That also applies to companies that have been operating up to now on the basis of the EU Passport. They also need a new permit and will be particularly expanding their back-office employees and infrastructure. If additional business domains such as broker-dealer operations are to be newly set up, this will require extensive investment. The key question is how one can continue to utilise the structures that already exist, possibly through channels of outsourcing. In general, it’s clear that a number of regulatory and tax issues will have to be faced.
And what are the greatest opportunities?
Wagner: First of all, I believe that Brexit is not a positive development, either for the European Union or for the United Kingdom. In an era of globalisation and networked markets, a mosaic of fragmented markets means additional costs and effort for almost all the parties involved. If one tries to find a positive side in this disruptive event, it might be the chance for companies to readjust themselves, question the status quo, and reassess previous practices.
What should definitely be borne in mind during the Brexit negotiations from the standpoint of the financial sector?
Wagner: Transition periods should certainly be agreed. It is foreseeable that it won’t be possible to regulate everything in the coming months up until the end of March 2019 so that a legally incontestable and smooth shift can become made on March 20th, 2019. This legal certainty for products and services is necessary, not least for the sake of financial stability.
Who is settling in the Financial Centre Frankfurt?
“Japanese banks warned very early on about the consequences of Brexit and are now among the first to react,” says Hubertus Väth, Managing Director of Frankfurt Main Finance. “Next, we’re now expecting decisions from the American and European banks, and we’re also confident as far as they are concerned.” Exactly who the financial companies are who will be coming to Frankfurt is shown below with an overview of selected key figures in comparison to the Deutsche Bank Group.