A report published on Thursday by the House of Lords Brexit committee, has called for urgent action to secure a “transitional deal” on EU passporting rights for the financial sector.
Baroness Falkner of Margravine, chair of the Lord’s EU financial affairs sub-committee, said financial institutions need to make decisions on whether to relocate if the UK is unable to preserve these rights.
“The government has a lot of work to do. First of all, it must, early in the negotiation process, agree a transitional period so as to prevent UK based financial services firms from restructuring or relocating on the basis of a ‘worst-case’ scenario.
“Last week, France’s leading financial regulator told the BBC that some major banks are in the advanced stages of planning to shift some operations from London to Paris,” she said.
She added that firms cannot wait until the end of Brexit negotiations, expected in 2019, to find out if they can trade in the single market from London.
“We are in danger of a lose-lose scenario if pragmatism does not prevail,” said Falkner, describing the UK current approach as “patchy, unreliable and vulnerable” to political influence.
“[The government] needs to determine as precisely as possible which firms currently rely on passporting and the degree to which equivalence provisions might provide a substitute,” she adds.
Job losses
The committee has been supplied a range of estimates of the likely job losses to the financial services sector, which currently employs 1.1 million people – 60,000 EU nationals and 100,000 non-EU nationals.
One estimate by EY, commissioned by the London Stock Exchange, predicts that 200,000 UK jobs are at stake.
Meanwhile, the Association of British Insurers (ABI) told peers that an early agreement on a transitional phase was needed since this would “provide the option for the firms most affected by Brexit not to take swift decisions in 2017 on scaling back”.
The Lord’s report predicts that failure to strike a transitional Brexit will also affect the ability to access highly-qualified staff and easily transfer them between the UK and the EU.
“This is even more important for the fintech sector, which relies heavily on talent, including entrepreneurial talent, from overseas,” it said.
EU won’t win
Falkner also called on the EU to “carefully consider” the findings of the report, arguing that London’s largest financial institutions are more likely to relocate to New York rather than to continental Europe.
“EU firms rely on the services provided in the UK, and pain caused to the UK’s financial sector will not be the EU’s gain, but New York’s. We are in danger of a lose-lose scenario if pragmatism does not prevail.”
