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| City of London Lord Mayor Peter Estlin, left, poses with British Ambassador to Korea Simon Smith, second from right, and other British officials after an interview with the Korean press at the embassy in Seoul on Feb. 13. / Korea Times photo by Yi Whan-woo |
By Yi Whan-woo
City of London Lord Mayor Peter Estlin is confident that the City, even after Brexit, will remain the financial and commercial heart not just of the United Kingdom, but of the world.
During his visit to Korea from Feb. 12 to 13 to promote the City, Estlin argued that the "sheer scale" of the City's business, respect for the regulatory environment and "huge levels" of investment related to the Fourth Industrial Revolution were proof the City would remain competitive internationally.
Estlin, a former Barclays executive, began his one-year term in November 2018 as the 691st Lord of Mayor of the City of London.
During his stay here, he met top financial regulators, including First Vice Economy and Finance Minister Lee Ho-seung, Financial Services Commission (FSC) Chairman Choi Jong-ku and Financial Supervisory Service (FSS) Governor Yoon Suk-heun.
Korea was the first stop on Estlin's 12-day tour of Asia, including Japan, Hong Kong and Singapore.
The following is an edited excerpt of the interview.
Q: Why and how do you think that the City of London will remain the financial hub, even after Brexit?
A: The starting position is one that the scale of the financial markets in London today are huge — certainly relative to continental Europe. We're the second-largest asset manager in the world (after the U.S.), we trade more dollars than in the U.S., we trade more euros in London than in the whole of Europe. We're now regarded as the global fintech hub, with more FDI and venture capital going into the U.K. So firstly the sheer scale of that business is one that would be very difficult to replicate quickly in any other part of Europe.
Secondly, if you look at why that business has developed over time, it's because of respect for the regulatory environment. Also, English language plays a key part of it. And the connectivity of investors to the market and services — for example in law and the other financial services around it. Much of that trade, whether it's with the Gulf or America or Asia, is not dependant on the relationship of the U.K. with the EU.
Also as part of the Fourth Industrial Revolution we're seeing huge levels of investment into fintech and other front-end technologies. Last year we had 3.8 billion pounds of venture capital coming into the U.K. (18 percent up on 2017), so people aren't fixating on Brexit in that it's a short- term political issue. The scale of the U.K. market is such that we've got access to talent, research, capital. All of these pieces mean that London will continue to remain an attractive marketplace.
Q: Do you believe that the impact of Brexit on the City will be limited?
A: The answer to that is largely yes. The marketplace has had two years to prepare for different outcomes. Certainly the businesses that I've spoken to securities, banks, insurance firms have prepared for all eventualities. But clearly the uncertainty associated with Brexit is something that they don't like, so as the City we've been calling on the government to make sure that a deal is in place as quickly as possible.
Q: There may be some regrettable outcomes of Brexit. What does the business community want to see?
A: Post the referendum the business community put down three requirements for government. The first was that we have smooth transition. In the current agreement that's on the table there is a transition period of 21 months, where the U.K. will remain effectively part of the EU for trade purposes whilst the longer term future trading agreement is defined. That transition is important, so we don't face a "cliff-edge" scenario.
The second thing that business has asked for is continued access to trade. The withdrawal agreement as currently structured provides that basis for continuity of trade in goods. As far as financial services are concerned that is covered by the side letter in terms of future cooperation between the EU and the U.K. That is both out of respect — as the EU respects the U.K. regulators — and it's important for financial stability that we have continuity of services.
The third aspect is access to talent. EU membership enshrines the free movement of people between member states. What the U.K. government has now proposed is to move towards an open market that allows talent to come into the U.K., that wouldn't discriminate between someone that comes from the EU and someone who comes from Korea. If someone from Korea has skills, as things stand today, they would find it more difficult to come into the U.K. than someone from the EU. We want to change that.
Q: We understood that the U.K.-Korea FTA was a top priority. Has it now moved down the list?
A: Replicating the existing EU-Korea FTA is still absolutely a priority. We have already signed two FTA's — one with Chile, one with Switzerland, and there will be more in the days and weeks to come. That has encouraged officials in both our governments to keep pushing to have a U.K.-Korea FTA ready for March 29, should it be necessary (i.e. in a no-deal scenario). Both sides are working extremely hard to achieve this.
Q: What is your opinion of the application of Blockchain as a virtual currency or ICO?
A: To give some context, fintech as a marketplace has developed quite rapidly over the last few years. In the UK we now have 77,000 people focused on Fintech, in about 1600 Fintech businesses contributing about 7 billion pounds to the U.K. economy. So, ita big business. But it's also a business that's moving very rapidly. And the technologies around ICOs, Blockchains, AI and machine learning is advancing very quickly. So the UK has created a regulatory sandbox, where businesses with these new technologies can apply to the regulator and operate in a restricted way. This allows the businesses, while in their early stages, to trade in a controlled environment — a kind of "testing" environment. That has worked very successfully for things like electronic payments (through mobile phones). For things like digital currency and ICO, it's more complex as the technologies are not fully developed yet. So in these areas the U.K. regulator is judging case by case. For example within ICOs one of the requirements is to know where the money is coming from. If the business is not able to provide that information, then they won't be granted a license. Talking to the regulators here, I think the same sorts of rules are likely to be applied here in Korea. It's important that as the new capabilities come to the market that they are safe for customers to use.
Q: What is the most important factor for a successful regulatory sandbox?
A: The U.K. and Korea signed a fintech bridge in 2016. We signed bridges with four other countries as well. So far, we've seen more traffic coming across the bridges in the other countries. So we've been encouraging the FCA (U.K. regulator) to discuss the development of the sandbox here in Korea — and obviously now with the chance in regulation that sandbox has come into effect. Talking to the FSS yesterday (Feb. 12), we understand that now quite a number of applications have been tabled, so that's very encouraging. What we have agreed is that we will provide information to the FSS/FSC on the scale of U.K. business looking to come to Korea — and we've asked them to provide information on businesses that are applying for the regulatory sandbox here, and those that might be interested in operating in the U.K. One of the attractive things is that the businesses applying to use the sandbox here are not just domestic businesses, but also international businesses. So we're going to encourage U.K. businesses to apply to the Korean regulatory sandbox now that it's up and running.
Also at the end of April in London we will have fintech week, so we'll be encouraging Korean fintechs to come to London to promote their capabilities. We understand a similar programme will happen here in Korea in May, and we'll also be promoting that to U.K. fintechs. Really we want more businesses to cross the bridge in both directions.
Q: You talked about freedom of movement. Do you think it will be easier for Korean players to enter the EPL because of Brexit?
A: If there any good, yes... In all seriousness the U.K. want to remain open for business. We operate in a global marketplace. Part of the success of London to date is that it's been very welcoming to business. We currently have more than 30 Korean financial services firms in London (employing around 1,300 people) and seven of the big Korean companies are listed in the stock exchange. All this helps global trade, and we want to encourage that. So one of the actions I'm taking away from my visit here is that we'll be meeting with the Korean financial businesses back in London, to make sure that we're meeting their needs and that they continue to feel welcome. That's what has made London successful, and will keep London successful.
Q: Can you explain your theme "shaping tomorrow's city today"?
A: It's about looking at how innovation and technology is transforming industries, and the impact it's having on economic growth. We're seeing this at the moment in financial services, but we're also seeing it in the wider economy with creative and media and life sciences. And whilst London today is synonymous with being very much a financial services hub, in the future this will expand into these other businesses as well. So positioning London as a marketplace that is attractive to investment in these areas is really important. What is fuelling that is digital skills — so the second part of my mayoral theme is looking at how we are preparing the future work force for the 21st century — looking at creativity skills, digital skills. The Government is investing in it, but it's also a commercial proposition. In fact I'm working with Dr. Yu shun Park, (a Korean currently living in Singapore) who presented a paper to the WEF in 2016 entitled DQ (digital quotient). She and I are working together to launch an international coalition for digital intelligence. This is to develop an understanding of the importance of digital skills in our society today — not just for those in work, but also those not yet in work, like our younger children. This is to ensure that they develop the skills to support them in the workplace, but also to protect them from digital abuse. That to me is a very important part of our society going forward.
So basically in essence I'm trying to promote the technology (and the commercial uses of that), but also to ensure we have training programs within our schools and business communities that are equipping our employees and future workforce with the skills they need for the 21st century. So it's all very exciting, and something that we need to do now.
Q: Some people argue that green finance doesn't make good business sense. What do you think?
A: When green finance started this was probably true. But what has happened over the last couple of years is that the actual projects themselves are increasingly financially viable. Whether it's investment in things like wind farms or solar (or other forms of sustainable infrastructure), around the world we're seeing increased capital flows going towards projects that are not only environmentally sustainable, but economically sustainable as well. So they're becoming more attractive. And as this happens, the premium that was associated with green finance has largely disappeared. Generally now the financing of sustainable infrastructure projects attracts a lot of capital. So we in the U.K. have launched the Green Finance Institute (GFI) to work with other organizations around the world to promote more and more green investment. Not just because it is the right thing to do environmentally, but it's now the right thing to do commercially as well. It's an expanding area, and over the last couple of days we've been discussing opportunities to work with Korean institutions on green finance as it becomes more and more attractive.
