LONDON -- The U.K. is considering tax incentives and other measures to keep financial institutions in the City of London, to retain the City's status as a global financial and business center after the British voted to leave the European Union.
HSBC has decided to keep its headquarters in London and "we would not call for that to be revisited," Chairman Douglas Flint said on Thursday.
"Right now we are not making any plans to pick up and move people from one location to another," Barclays CEO Jes Staley told the BBC.
But American financial titans JPMorgan Chase and Goldman Sachs are considering moving some operations to other countries. Japanese banks are reconsidering their presence in London as well. Lord Mayor Jeffrey Evans will leave Saturday for Japan, South Korea and other countries to convince them to maintain investments in the City, which contribute to its status as a global financial hub.
The U.K. is also putting fiscal reforms on hold, to instead lower taxes on financial institutions and corporations. Chancellor of the Exchequer George Osborne told the Financial Times on Monday that he plans to cut the corporate tax rate to under 15%. The country may also move up its current plan of cutting the rate from 20% to 17% by 2020.
Financial institutions are most interested in "passport" privileges, which allow them to operate anywhere in the EU with a license from just one member state. The financial industry is urging the government to pursue an arrangement similar to the European Economic Area, which includes such non-EU members as Norway, to maintain access to the EU's single market.
Home Secretary Theresa May, a front-runner to succeed Prime Minister David Cameron, told local media Tuesday that she aimed to maintain "the advantages that the City has." She said that "passport" rights should be a priority in exit negotiations with the EU.
"There is a clear risk that euro-denominated activities relocate to within the EU simply to ensure continuity of relationships," JPMorgan's Malcolm Barr wrote in a note to clients.
The U.K. has been the center for euro-denominated transactions, thanks to its sophisticated settlement system and other factors. It clears 70% of all euro-denominated derivatives trading. But the European Central Bank may push for regulation to move such transactions to Paris or other European cities.
The planned merger between the London Stock Exchange and the Deutsche Boerse, which LSE shareholders approved on Monday, could face obstacles as well. "It is hard to imagine that the most important exchange venue in the eurozone would be steered from a headquarters outside the EU," said Felix Hufeld, head of the German financial market regulator Bafin.
It will be impossible for the U.K. to retain all of its financial functions after it leaves the EU. But no city in the eurozone is large enough to entirely replace the City by itself. Those transactions that are moved from London will be split across several cities, potentially impacting the entire region's financial functions.