In the five years since the UK formally exited the European Union, an estimated 10% of UK banking sector assets and some 40,000 jobs have shifted to financial hubs across the bloc. Paris, Dublin and Warsaw have emerged as key beneficiaries of the post-Brexit reshuffle. The EU’s reluctance to include financial services in the initial trade agreement was widely interpreted at the time as a strategic decision aimed at maximising the economic cost of departure. “No cherry picking” became the refrain in Brussels.

Yet despite early warnings of an exodus, London’s position as the continent’s leading financial centre remains largely intact. While some functions have relocated, the City continues to dominate in critical areas such as euro-denominated clearing, still accounting for over 90 per cent of activity. This dominance owes as much to the scale efficiencies and systemic importance of London’s infrastructure as it does to the EU’s difficulties in replicating it.

Efforts by France and others to repatriate clearing have met institutional resistance, with the European Commission extending temporary equivalence for UK clearing houses three times, most recently in January. That arrangement now runs to mid 2028, a tacit recognition of the complexity and potential risk involved in engineering a sudden decoupling.

Broader ambitions to create a rival European capital markets hub have similarly fallen short. Fragmentation along national lines continues to inhibit the growth of EU capital markets, which now trail not only the United States but also China in size. A lack of scale, regulatory divergence and the persistence of transaction taxes have made EU equity markets relatively unattractive. Several high-profile European tech firms, including Klarna, have opted to pursue listings in the US.

Brexit has also diminished the UK’s position as a direct investor into the EU, with activity falling by up to a quarter. Nonetheless, the UK remains the bloc’s second largest source of foreign direct investment, behind only the US. Some analysts argue that reinstating financial services passporting rights or developing an equivalent mechanism could restore momentum.

Contrary to the expectations of some EU policymakers, no continental city has yet displaced London as Europe’s financial capital. Nor is there a compelling case to suggest that one will. At the same time, the argument that the UK should be treated differently from countries such as Japan and Canada on the grounds of systemic size now appears outdated. Interconnection, if anything, argues for closer cooperation rather than separation.

There are pathways for progress. A shared supervisory framework or the establishment of a neutral dispute resolution mechanism could enable regulatory alignment without turning the UK into a rule taker. Such arrangements would benefit both parties. London retains access to European markets, while the EU gains deeper capital markets and greater investor access.

With Labour’s Rachel Reeves signalling that economic growth will be a central policy priority and the UK reaffirming its commitment to global finance, further integration in financial services could deliver material benefits. Closer UK EU financial ties, negotiated alongside defence cooperation and fisheries quotas, may not reverse Brexit but they could strengthen both sides at a time of economic and geopolitical uncertainty.

Europe’s largest capital market now sits outside the EU. The priority should not be to isolate it but to harness it. At a time when the continent faces pressing investment and security needs, policies that unlock capital should not be constrained by political legacy.

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