Setting an example

Banks that are planning to move their London operations to EU cities as a result of Brexit are expected to choose their new locations within the next few months. The competition for this post-Brexit business among other major European cities is therefore entering its most important phase. Madrid's pitch has so far focused more on the benefits of life in the Spanish capital rather than on Spain's banking sector, citing factors such as fewer rainy days and lower living costs than close rivals such as Frankfurt, Paris and Dublin. Yet a spate of recently-announced investigations into senior bankers accused of financial misconduct might well boost Spain's standing for banks fleeing London.

Last week the National Court in Madrid confirmed that Miguel Ángel Fernández Ordóñez and Fernando Restoy - respectively former Governor and Deputy Governor of the Bank of Spain - and Julio Segura, ex-chief of the securities regulator CNMV, are under investigation in connection with Bankia's disastrous share sale in 2011. The bank raised three billion euros from the stock offering in a desperate attempt to stay afloat. Almost two billion euros worth of shares were sold to retail investors, yet just a year later Bankia almost collapsed and required a 22-billion-euro state bailout. Spain's National Court has upheld a claim that Ordóñez, Restoy and Segura went ahead with the 2011 share sale despite numerous warnings from an inspector that it would result in substantial losses. They will testify in a few weeks' time.

Whether or not they are meant as proof that the Spanish financial services sector is finally cleaning itself up, these investigations can't hurt Spain's reputation in the eyes of banks such as Citigroup and UBS, both of which are sizing up Madrid as a post-Brexit location for their London operations. The same can be said about the fraud trial in which Rodrigo Rato, former IMF boss and deputy prime minister of Spain, is currently a defendant. If the bankers in either case are found guilty of their alleged offences, their sentences could reinforce the message that Spain no longer tolerates fraud in banking or politics.

Madrid's bid to portray both itself and Spain as a whole as a serious financial hub has also been strengthened by the recent conclusion of another high-profile fraud case. Last Friday, the King of Spain's brother-in-law, Iñaki Urdangarin, was sentenced to six years and three months in prison for pocketing millions of euros of public money through a bogus charity. His wife the Infanta Cristina, sister of King Felipe VI, was acquitted and handed a relatively negligible civil fine of 265,000 euros. For many who followed the case, it was symbolic of whether or not Spanish royals are above the law (and there is arguably now a verdict and sentence to support each side of that debate).

In the long run, though, it will take more than the occasional flurry of fraud crackdowns to prove that Madrid is a world-class banking hub. Indeed, the Spanish financial services regulator is currently setting up a fast-track accreditation service, in English, for banks looking to relocate from London. Madrid has also been touting its links to emerging Latin American markets and its large amount of vacant and relatively cheap office space. If the Spanish capital also maintains its apparently tougher stance on corruption, it is well placed in the beauty contest for post-Brexit business.