London-based banks and other financial firms won’t put their Brexit moves on hold despite a transition deal between Britain and the European Union as it lacks full legal certainty, industry officials said on Monday.
Banks and insurers have said they might not be able to rely on this week’s political agreement as it will not be formally ratified by EU governments until October or later – too late for them to avoid making changes to their operations before Britain’s departure from the EU in March 2019.
Catherine McGuinness, policy chief at the City of London, home to the Square Mile financial district, said the transition deal needs to be endorsed by industry regulators so businesses are able to use it to suspend plans to move jobs and operations out of Britain.
“A lot depends on how the regulators respond,” McGuinness told Reuters. “It’s all good but let’s see how far it takes us.”
London-based financial institutions face losing the right to sell their services across the EU after Brexit, meaning they would have to shift some work to the continent or Irish Republic. The City expects 5,000 to 13,000 job losses among the 1.1 million people employed in the sector across Britain.
Miles Celic, head of TheCityUK, which promotes Britain’s financial sector, noted that nothing is agreed until all parts of Britain’s EU divorce deal has been approved.
The arrangements for the border between Northern Ireland and the Irish Republic remains one of the thorniest issues of Brexit and has repeatedly threatened to derail talks with the EU.
One financial lawyer said the transition deal simply pushes forward the “cliff edge” for financial firms to the end of 2020, unless backed by other measures to underpin insuranceand derivatives contracts that go out several years.
No Worst Case
Executives at least five major banks in London told Reuters they will push on with their contingency plans regardless of the latest agreement. “Some businesses need certainty and they will need to press on with their arrangement,” McGuinness said.
EU regulators have put pressure on banks in Britain not to rely on a transition deal and instead submit license applications for new EU hubs in case Britain exits the bloc with no arrangements in place.
UK Finance, which represents banks in Britain, said regulators must now use the transition to avoid insisting on such worst-case contingency planning.
“Without political direction from leaders in the EU to their financial regulators instructing them to develop cross-border models of supervision and solutions to these cliff-edge issues, financial institutions and their customers may not be able to rely on these measures,” UK Finance Chief Executive Stephen Jones said.
Andrew Bailey, head of Britain’s Financial Conduct Authority wants a transition deal to give regulators enough “cover” to coordinate cross-border for a smooth Brexit.
The FCA had no comment on Monday’s deal. The Bank of England, which has also stressed the importance of a transition deal, had no comment.
However, Deputy Governor Sam Woods has said that a clear political statement on transition would be enough for regulators to give reassurances to financial firms, meaning they don’t have to plan for the worst and speed up Brexit moves.
Paul Hardy, head of Brexit at DLA Piper law firm in London said Monday’s political deal won’t be enough for financial services firms to rely on.
“Without some form of legal guarantee that what is going to be agreed in Brussels on Thursday will hold fast until 29 March 2019, there is simply too much scope for the promise of a transitional deal being derailed in the months to come, for example over Northern Ireland,” Hardy said.
James Stewart, head of Brexit at KPMG consultants, said the transition deal will make little difference to business leaders in their Brexit planning.
“Legal certainty is what counts. So until we have legal certainty, our clients will continue to take action to prepare themselves for a ‘no-deal’ scenario,” Stewart added. (Additional reporting by Guy Faulconbridge; editing by David Stamp)