Brexit, Bregrexit, Weaseloutofexit; whatever may happen in the short and long term, one thing is certain, the Isle of Britain has gone full Game of Thrones. The North is planning on declaring a King in the North, a power play in the Capital led to some fools setting the city ablaze and angry white voters are forming an unstoppable zombie army impervious to reason, civility or intelligence. We’re just waiting now for some hot girl from Wales to hatch a Griffin and we’re all set for a major show down. In the US, life was already imitating art with House of Cards, the UK doubled down on it.
All fun and TV references aside though, let’s take a look at the real world implications for the financial sector, and are there opportunities for the Netherlands, that ambitious country that once erected a Holland Financial Centre in the belief it could actually become a hub for trading, much like it was a number of centuries ago.
First, let’s try to stay away from speculation as much as possible. We don’t know how the chips will fall and we won’t pretend we have the least bit of insight if there will be a single market entrance for the UK, a free flow of human capital and a strong or weak British Pound.
What we do know is the following:
- There is economic uncertainty and this will not likely change for the coming years;
- There is political uncertainty on either side of the aisle and most likely will continue;
- There is regulatory uncertainty;
- There is geographical uncertainty. Cities who want to separate, countries who want to separate. Also something not likely to change in the coming years;
- And, finally the cultural, ideological and racial divide is exploding. Foreigners, regardless if they are refugees or super smart programming nerds will feel unwelcome in their everyday life in pubs, schools and supermarkets.
The people who set the long-term goals for companies will take a long hard look at all these issues should ask themselves the question: “Is this the country where my business can thrive? There are enough uncertainties already in business cases for markets and products. Why add geopolitical instability to the mix?” We think any corporate policy maker would be a fool not to seriously consider relocating to a more stable environment or at the least take the UK out of the equation when they are considering where to build their new business.
That leaves potential for other European cities and here we’d like to take a look at the opportunities for the Netherlands. First, let’s determine the different sectors in the Financial Industry:
- Banking and buy side (Banks, insurance companies, large institutional investors)
- Sell side & funds (prop trading, market making and (hedge)funds
- Clearing & exchanges
- Services (Technology providers, fintech)
With those sectors in mind, what do we have to offer, and where are the obstacles?
Location and infra-structure
In this regard, we have some pretty good cards on the table. Easy physical access to the world through a decent highway structure and large airport, and an above par technological infra-structure with Europe’s premier internet hub AMS-IX and glass fiber being the standard in most offices. This makes the Netherlands appealing, or at least competitive with other countries for most of the sectors with the exception of the larger companies like banks and insurers. Face it, physically housing a company with 1000’s of employees is easier done in cities like Frankfurt or Paris.
We love to bitch and moan about basically everything here. It’s essentially part of our cultural heritage. But from a foreigner’s perspective, we are actually very attractive. Housing is relatively affordable, a good health care infra-structure, good (inter)national schools and universities, social securities, tax incentives for expats to name a few are things we are extremely competitive or better in than most other countries. The country has also been relatively safe, compared to for instance Brussels or Paris. Admittedly, the country is not free of the rising tide of xenophobia, islamophobia or religious extremism and things are likely not going to get better but we’re still relatively better off than most of Europe. All in all, big points to the Netherlands for all sectors, especially in trading, and fintech. Their human capital is usually younger than average. They especially look for a ‘fun’ place to live with an international culture and affordable living.
Government has been relatively stable and pro-business in comparison to other countries. France is a bigger mess, Belgium has always been a joke and a divided country, Spain is getting ready for a third election, Austria is reminiscent of the Gore vs Bush election and Italy literally prefers clowns as political figure heads. Ireland is competitive here, although a Northern Ireland reunion may bring additional uncertainty. Most stable seems to be Germany though, a country that was able to unify itself after decades of separation and managed to rapidly overcome a very black page in their history books. The Netherlands is a very decent second, absolutely not free of potential dangers (we’re looking at you, Wilders with your Nexit) but no country is nowadays.
Basically, the Dutch economy rises and falls with the rest of Europe and the world. We are not a catalyst and never will be. What we do have is a pragmatic pro-business mindset, much like our Eastern neighbors. There is a notable exception to this, which we’ll touch on later.
Overall we have some good cards here. Well educated people, bi or tri-lingual, entrepreneurship and culturally not as complex as French, Spanish, Italian or British people can be. Not too much different from Germans but then with a sense of humor and a bit more relaxed perspective on things. The Netherlands should have the upper hand here, limited only by its sheer size.
Business & Regulatory environment
The Netherlands likes to pride itself on its rich trading history (for what that’s worth), the first exchange, the VOC all that stuff. Great stories but not that useful in everyday business. What does matter however is what there is currently out there. We have some large conglomerates such as RD, Unilever and Philips to name a few. That means we also have an ample amount of large service providers to these companies with decent size offices and brain power. Think international lawyers, accountants, IT and banks. There is enough competition there and that is beneficial as they need to be competitive on price and quality. For funds and trading firms it is important that there are still some good banks left that are relatively stable and that the government was willing (and able) to support them went the crisis hit the world. ABN AMRO Clearing is still here and an important partner for trading firms and funds. The Dutch Central Bank and the Dutch regulator AFM have proven to be constructive, knowledgeable and pragmatic in comparison to their European peers. And, as long as the single market will exist, the Netherlands will remain a part of this. From a regulatory perspective, the Netherlands, much like any other part of the EU continent will be a safe haven for distributing funds and holding a European passport. Then, there is the dreaded FTT that still not officially declared dead. The Dutch are still against it and hopefully continue to resist the implementation. So, here as well; pretty good cards for the Dutch.
The notable exception
All in all, the Netherlands is a great place to host your business or operations from. We’re competitive on almost every aspect or even superior. There is however one thing that disqualifies the country, at least for the banks and insurance companies. After the crisis and the bail-out of the banks, the people needed something or someone to blame. That blame fell upon the bonus culture in the financial sector. Since February 2015 a new law got implemented called “Wet Beloningsbeleid Financiele Instellingen”, severely restricting the way companies can determine bonus schemes. These restrictions are hard in comparison to other countries and (for now) mostly apply to banks and insurance companies. For those sectors it practically immediately disqualifies the Netherlands as a location to settle their operations. But, it also has implications for other sectors and they need to be creative to circumvent some of the rules. Least affected would be the fintech sector.
The Dutch got some pretty good arguments if you plan on building your business outside of the UK. It is competitive in every aspect and is only limited by its physical numbers. The anti-bonus law is a huge no-go for the bankers, insurers and large funds but there are green lights for the other sectors, especially for traders, Fintech, clearers and regulators. For the European Banking Authority for instance, it should be a no-brainer to put Amsterdam on top of their list and every Fintech company should see the entire country as a potential Silicon Polder. Trading firms, especially the HFT ones should consider Amsterdam, home to three of the most prominent trading firms already and clearing, the ‘dealing with the business end of things’, also seems like a natural fit.
So, there you have it. Come and check out its potential if you’re in for a new location for your business. All you need this summer is an umbrella and someone who can guide you through this place and its people. We’re happy to help you with both.
Note (as this was written on Friday and the NYT made similar arguments for the Dutch, causing some local headlines): For the Dutch government, this should be a good moment to roll out the welcome wagon and make some extra effort in marketing the Netherlands. Our PM though stated based on the NYT article that they would not consider this as this might be counter productive. Strange argument, guess our PM prefers to play 'hard to get'. It might explain why he is still single. He also stated that there is 'flexibility' in the bonus legislation and it should not hold corporates back on settling in the Netherlands. He did not elaborate much on this flexibility.
Perhaps it is time for the Dutch Financial Market to come together and build their own welcome wagon (Holland Financial Center, are you still alive?). That group can also lobby to make the bonus legislation as 'flexible' as possible.