Newspaper article The Evening Standard (London, England)

City Robust amid Brexit Stress -- but Where Will the Strain Show Next? City Comment

Newspaper article The Evening Standard (London, England)

City Robust amid Brexit Stress -- but Where Will the Strain Show Next? City Comment

Article excerpt

Byline: Anthony Hilton

Say what you like about the City, the architecture is pretty resilient. When the EU referendum result wrong-footed the markets a week last Friday, market trading soared to about six times its normal levels.

The next Monday, a lot of that trading had to be settled, with collateral movements that were huge and again unprecedented. The activity going through the clearing houses was extraordinary by any measure. It was the stress test to end all stress tests, as HSBC chairman Douglas Flint said last week at the annual conference of TheCityUK, the financial-services industry lobbying body. He noted, as should the City, that the system did not break.

The plans put in place after the 2008 crash, the efforts made to improve capital and liquidity, the trust people have in English law and the clarity of the resolution and insolvency processes plus the focus of the Bank of England and others on maintaining financial stability all played their part. The system coped in a way that might not have been the case in other financial centres.

The most notable sign of strain came among the new breed of fintech firms, which move foreign currency from one jurisdiction to another. TransferWise, one of the leaders in the field, said ahead of the vote that it would restrict its services because it anticipated there might be considerable volatility. It imposed further restrictions after the result. Others followed suit, which makes one wonder if a regulator was giving quiet reminders to them all that it was better to be safe than sorry.

The restrictions were probably a sign of natural caution and prudent risk management but some did ask if it was a sign their systems may not be quite as resilient in a high-stress environment as had been assumed.

There is in fact no sign of any such weakness, and TransferWise has given no indication of any such problems, but the question has interesting implications because the company uses something akin to blockchain technology. Blockchain is currently the most hyped innovation in financial technology, with its advocates saying it will do everything bar cook your lunch -- and promises to make half the existing players obsolete by teatime.

Others take this with a pinch of salt, saying financial technology rarely lives up to its early promise. But they do promise to become more enthusiastic once someone finds something it might be applied to, and then makes it work on a large scale.

That debate is likely to be with us for a while yet. yesterday, however, came a more pertinent sign of strain in this post-referendum world when Standard Life suspended trading in its PS2.7 billion UK property fund to stop investors pulling their money out. By locking down the fund, they hope to avoid having to sell assets in bad markets. …

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