A year after new Brexit rules took effect following the UK's departure from the EU, the powerful City of London remains Europe's top financial sector despite losing key business and bankers to rival hubs.
The City's financial services were hit by a particularly hard Brexit: they were all but left out of the trade deal the UK and the EU agreed in December 2020, and have seen no deal on equivalence — the status Brussels grants to third countries allowing them to operate fully in Europe.
When the new rules took effect in January 2021, British operators took an immediate hit. With London prevented from offering EU-listed shares to clients outside the UK, stock market trading plunged by 40% in the first month and the City was overtaken by Amsterdam in the European table.
But globally, London is still dominant in several markets, including foreign exchange and derivatives. Overall it remains the world's second-biggest financial centre behind New York, far ahead of its European rivals, according to the Global Financial Centres Index 2021.
"London has spent hundreds of years as a global financial centre. Brexit will not change that, certainly not anytime soon," said Lee Wild, head of equity strategy at Interactive Investor.
"Leaving the EU brings challenges and there are threats from Paris, Brussels, Frankfurt and Amsterdam," Wild told AFP. "But the likelihood that European rivals will wrest the crown of Europe's primary finance hub from the UK is slim."
"London still has a huge amount in its favour," Russ Mould, investment director at AJ Bell, told AFP. The City "offers an ecosystem of banks, advisers, lawyers, fund managers and hedge funds" to attract companies, he added.
However, about 44% of UK-based financial services firms have moved or plan to move operations or staff to the EU, according to financial group EY. Asset transfers totalled £1.3 billion (€1.55 billion) at the end of last year, it added.
Dublin and Luxembourg are home to the highest number of office moves, while Paris has taken the most staff from the UK. In June, French President Emmanuel Macron inaugurated JP Morgan's new trading hub in Paris, several hundred of the firm's traders relocating from London last year.
Yet London has so far only about 7,400 financial roles, EY says — a drop in the ocean given that the UK financial sector employs more than a million people, 400,000 of whom are based in the capital.
COVID travel restrictions have led dozens of financial institutions to delay moving staff and services from Britain to the continent, an EY director has been quoted as saying. But "the financial sector is still working through the hangover of Brexit", and moves are expected to accelerate in 2022.
British banks have also ended some commercial ties with clients based in Europe.
The high number of companies making their stock market debut in 2021 — there were 122 initial public offerings, the highest amount since 2007 — are another example of London's appeal.
"London continues to be an attractive destination for business investment and finance professionals alike," Morgan McKinley's managing director Hakan Enver told AFP. "To date, we are yet to see an exodus due to Brexit, and it's now unlikely that will ever happen."
"The real risk (for London) is not a 'big bang' but a slow deflation as activity moves to other centres, most probably in the US or Asia," said Jack Neill-Hall of financial sector lobby group TheCityUK.
The shift of financial business from the UK to the EU has been likened to a "slow puncture" that could take years or decades to develop. Analysts say the process has been held up by the slow pace of financial reform in the bloc, although plans are afoot to speed things up in some areas.
Financial links between the EU and London remain influenced by political factors — and strained relations over matters such as the row over post-Brexit arrangements in Northern Ireland have put a brake on new agreements.
Brexit has created a huge financial fault line between the UK and the continent. But while London and the EU seek to assert their own independence, both sides appear hesitant at moving to sever links too quickly.