'BUSINESS AS USUAL' FOR CITY BANKS IF UK LEFT THE EUROPEAN UNION

Brexit could damage the status of the City of London.

The City of London has “nothing to fear” from life outside the European Union and international banks would have no reason to leave Britain, a report has found.

The report, written by senior business figures and published by the Business for Britain campaign group, challenged claims that leaving the EU would be harmful to the UK’s large financial services sector.

“Britain and its financial services industry have nothing to fear from separating from the EU’s institutions,” it concludes.

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The Telegraph is this week publishing extracts from the 1,000-page document. The editorial board that produced the report was chaired by Jon Moynihan, the former executive chairman at PA Consulting Group. Other members include Andrew Allum of LEK Consulting, Luke Johnson, a leading venture capitalist, and Helena Morrissey, one of the City’s most prominent fund managers.

It comes as David Cameron prepares for an EU summit in Brussels where he will start formal negotiations for changes in Britain's EU membership terms. The Prime Minister will put his new deal to the British electorate in a referendum by the end of 2017.

The Business for Britain authors has argued that unless Mr Cameron can win fundamental changes in the membership agreement, Britain's national interest is best served by leaving.

Some opponents of so-called Brexit argue that leaving the EU would be economically harmful, not least since many international banks would move their operations out of London.

The report concludes that such warnings are overdone, and suggests that financial services firms would have little reason to leave. Such firms would be able to continue operating as usual, and might even benefit from lighter regulation.

The crucial issue for financial services companies after an exit would be whether they would, as now, have free access to financial markets across the EU, buying, selling and lending out

"It is very unlikely that the EU would try to deny the City access to European capital markets: the EU itself would be harmed if it cut ties with the City of London. Further, the appeal to large multinational financial institutions of settling in the City is not simply Britain’s EU membership. The UK has a range of attractions to these firms. “

If the UK were to become a member of the European Free Trade Agreement after exit, UK-based banks would have "passporting" rights to operate across the EU.

However, the report says that even without that status, UK banks could still get access to EU markets, because of free trade promises the EU has made to the World Trade Organisation.

"Considering the sheer lack of UK influence over EU laws this would not be materially different to the situation we find ourselves in today. In fact, by reclaiming a seat at key international [financial] institutions, the UK may gain a more significant role in drafting the international rules that the EU then transcribes into its own laws," the report concludes.

The authors also suggest that an independent UK would enjoy considerable latitude over quite how to match EU financial regulations, since EU regulators do not demand "complete uniformity" from outside countries using European markets. "Even if the UK were to decide to incorporate EU laws, it would still have the power to make fundamental changes to them," the report says.

Being outside the EU but doing business in its financial markets would have a "cost", the report finds: Britain would have to impose "financial regulations on the City "equivalent" to those in place in the EU.

That could raise the possibility of Britain being bound by rules that it could not influence.

However, the report suggests the situation would not be significantly different from the current position, since EU rules presently give the UK little or no ability to block harmful financial regulation made in Brussels.

The publication of the Business for Britain analysis came shortly after Standard & Poor's, a credit ratings agency, gave its verdict on the consequences for the City of a British exit.

In a report, S&P said that leaving the EU would increase the risk of banks shifting their headquarters out of London.

“London is the principal global hub for banking and financial markets, and non-EU banks typically make it their springboard for conducting operations in the EU,” the report said, noting that a fifth of global banking activity is recorded as taking place in the UK.

While London would “maintain its status as a global financial center” if Britain voted 'No' to continued EU membership, S&P warned that international banks “could ultimately consider other locations as bases for their European operations”.

The ratings agency said: "Post-Brexit, the center of gravity in European financial markets could well move further toward Frankfurt, Paris, Dublin, or beyond."

Frank Gill, a credit analyst at S&P, added: "The extent of this impact will crucially depend on what alternative free trade arrangements the UK government could agree with its European partners in the event of an exit."

The Telegraph