Recently a document photographed in the hands of a senior Conservative official on Downing Street suggested Britain is unlikely to be able to remain a member of the single market.
The handwritten note also mentioned : “What’s the model? Have cake and eat it.” It added French representatives will likely to be the most difficult to convince.
The importance of the document has since been minimised by Britain officials.
But here is an evidence: France is seeking business and the country has not forgotten that former Britain prime minister David Cameron was prompt to “roll out the red carpet” to wealthy French companies and individuals in June 2012 when some of them were considering a British escape to flee the taxes set up by the French socialist government.
More than four years later, France rushes to roll out the red carpet to UK businesses – in particular in the financial sector – seeking an exit door if Brexit really occurs.
Finance is ever less seen as the “true enemy” like French president François Hollande called it at the beginning of its mandate in 2012.
Ahead of the eventual triggering of Article 50 in 2017 by Theresa May, the Paris financial place is gaining edge by boosting its competitiveness.
Regarding asset management, a series of measures have been already implemented, and others will follow, all aiming to render more attractive frameworks for the French regulatory and fiscal environment in France, product innovation, management and marketing methods.
“We can be operational in the very short term. But we shall call for a united front in the rest of Europe against UK based asset managers that would try to use derived ways to passport their funds in Europe. We have to do our best to make UK companies register their funds in Paris for passporting purposes,” argued Didier Le Menestrel, chairman of the competitiveness commission at French asset management association AFG to InvestmentEurope back in July 2016.
AFG has issued a whitepaper on 22 November summing up ten propositions that it believes will contribute to making Paris the main platform for the European market by 2025.
These ten solutions have been the fruit of long discussions within Frog, the working group set up by AFG and French market regulator AMF and led by Didier Le Menestrel.
“The solutions proposed in this whitepaper lay down an ambitious and realistic roadmap for French asset management. France’s asset management industry has gained an international reputation. The proposed measures are intended to enhance its role in aiding the country’s economic development,” said Yves Perrier, chairman of AFG.
“The implementation of the measures we are proposing today will help to give it a decisive advantage” added Le Menestrel.
What does the Paris financial place have in its bag? It will firstly work on creating a stable and sustainable fiscal framework.
Setting up a fiscal regime for the preferred savings option, abolishing payroll tax, creating a free-trade area for the asset management industry and defending the withdrawal of specific taxes, especially the FTT, are some of the solutions the French asset management industry will look at.
Also it will defend the establishment of an individual European pension product, an idea that the European asset management association Efama has been supporting for a long time, as well as the relaxation of Solvency 2 constraints for long term assets.
The modernisation of the subscription system and development of “.fr” fund governance is another facet of AFG’s projects.
This goes along the definition of a clear and secure framework for securitisation to enable products using this technique to be offered to all investors, including Ucits funds. An “.eu” ISIN code for European UCIs subject to a directive providing for free circulation.
Also an international ambassador of the French asset management industry, Jean-Louis Laurens, has been named by AFG.
London’s City physically moving to Paris, a possibility ?
The Brexit vote has caused a wave of rumours regarding moves from banking groups having their headquarters in London. Paris, Luxembourg, Dublin and Frankfurt have been the most quoted cities as the potential future main European financial hub.
Paris has topped the last LaSalle’s European Regional Growth Index (E-REGI), launched in 2000 by La Salle Investment Management in 2000 and covering cities of 32 countries in Europe.
The index captures the strength of future demand for real estate but does not provide insights on future property supply or pricing insights.
Components of the index are 60% growth (22.5% GDP, five-year forecasts, 22.5% service employment and 15% human capital), 20% wealth (GDP per capita) and 20% business environment (monetary trade, political stability).
The index has a strong correlation with the cities’ future office markets performance. The higher the cities rank in the index, the better their office markets are expected to perform.
Speaking to InvestmentEurope, Mahdi Mokrane, European head of Research & Strategy at LaSalle Investment Management explains : “There are two main reasons why Paris is now at the top of the E-REGI index in 2016. Both regional and national economic forecasts for the UK, updated after the referendum, have been revised downwards.
“In parallel, forecasts for French cities such as Paris and Lyon have improved. What’s more, Paris scores very highly in the human capital factors, which make up 15% of the index. As a consequence London dropped a place in the index and Paris moved up a place.”
Paris has always made it into the top 3 since the index was launched and Brexit could push ever more London down.
“If we look at different components – the UK’s GDP, service and employment forecasts – even though still relatively strong, have been revised downwards by 0.5% to 4% over a 5-year period. That makes a significant difference,” says Mokrane.
“A 10% slash to UK corporate taxes has been taken into account in the GDP forecasts that we used for the index. Although it has only had a marginal impact at this stage. If the measure is implemented, it will increase forecasts such as GDP expectations. However, access to the EU market and to European passporting for the UK fund industry remain more important factors than a local tax cut,” he adds.
Mokrane believes Paris has the edge in the bid to become Europe’s next main financial centre.
“Historically, London has been a financial centre for the past three centuries. London has a very diverse skillset, attracts talent worldwide and boasts human capital particularly in the finance and tech industries.
“How many cities can claim they have the size, the workforce, the innovative mindset and the culture of London to become the next main financial hub if Brexit occurs?” he argues.
According to Mokrane, the first competitor to London remains New York but he recalls Paris is only a little over two hours from London and has the scale to become the next main financial centre in Europe.
However, Paris faces a language issue, lacking of English skills, he reckons. The EU’s Brexit negotiator Michel Barnier having demanded all talks to be conducted in French last October may not help Paris in its vows to attract the most of London financial services if Brexit happens.
“Dublin and Amsterdam already have an edge in that area, but Dublin lacks the size to welcome even a small part of the London financial industry,” says Mokrane.
“Frankfurt could be tempting, but, again, there the issues of a lack of English skills and the size of the city,” he pinpoints.
What about Luxembourg, another hot spot of the European asset management industry?
“Although it is very international and benefits from a soft tax regime, Luxembourg too does not have the scale. Many asset managers may be tempted to grow the personnel of their subsidiaries there but if you are an analyst, manager or investment banker, you may want to be close to a big city hub,” Mokrane answers.
La Salle IM’s European head of Research & Strategy believes that the UK will do its best to remain European’s biggest financial hub despite Brexit, and encourage asset managers to stay.