City firms ready to pull Brexit trigger unless transition deal is agreed
TheCityUK said the value of a transitional deal is “disappearing by the day”.
Financial firms will pull the trigger on “irreversible” Brexit job relocations in the new year unless the Conservatives agree a transition deal imminently, a City lobby group has warned.
TheCityUK said the value of a transitional deal is “disappearing by the day”, as political and legal uncertainty dogs the Square Mile and big banks shift staff from London to the EU.
The group’s chief executive, Miles Celic, said: “EU and UK negotiators cannot delay discussing a transitional deal any longer if they want it to hold any real value.
“Firms are beyond the planning stage now. If they haven’t done so already, most will be ready to press go on their contingency plans in the new year.
“They can still take their foot off the accelerator if a transitional deal is agreed, but without progress soon, it may be too late. Once businesses start moving, there is no reverse gear. It is simply not efficient or economically viable to move operations twice.”
TheCityUK argues that, to avoid this scenario, an agreement must be reached by the first quarter of 2018 “at the latest”.
The warning comes after a steady stream of banks – such as Citigroup, Morgan Stanley, Daiwa, Sumitomo Mitsui Financial Group (SMFG) and Nomura – have already announced that they are relocating operations and staff from Britain to the EU in the wake of Brexit.
TheCityUK believes that 75,000 jobs and £8 billion to £10 billion in annual tax revenues are at risk if the UK crashes out in 2019 without a deal and has to fall back on World Trade Organisation (WTO) rules.
British businesses have also pressed the Government to agree a transition period, with divorce talks with the EU having so far failed to advance.
But Mr Celic claimed the failure to secure a transitional deal isn’t “just about business leaving the UK”.
“It is about the very high risk of jobs, capital and inward investment leaving Europe entirely.
“The resulting fragmented markets will be of benefit to no-one, with costs likely to increase for customers right across the continent,” he said.
Some experts believe that rival global financial centres such as New York and Singapore stand to gain the most from Brexit as London’s status diminishes.
In a paper published on Tuesday, TheCityUK is calling for a transition “as close as possible” to the status quo that would allow “continued mutual market access, avoid two sets of costly adaptation phases, and see the UK accept all of the rights – and obligations – of the Single Market”.
The transition period should be long enough to finalise a new relationship between the UK and the EU27, including the conclusion of a comprehensive free trade agreement and the design of the new regulatory framework to go alongside it, the group argues.
The multitude of agreements that need to be “grandfathered” include derivatives contracts, revolving credit facilities, general insurance and long-term life insurance, TheCityUK added.
Failure to do so and the “consequential legal uncertainty may severely disrupt financial arrangements of UK and EU consumers, corporates and investors”, the group said.