BRUSSELS – US banks have told both the European Union and the British government that they want the financial industry shielded from Brexit for several years after the UK has left the EU, BuzzFeed News has learned.
Bank executives earlier this month told European Commission officials they need more than the two years set out by the EU’s exit procedure to prepare and transition to whatever new arrangement is agreed with Britain, an EU source with knowledge of what was discussed during the meetings told BuzzFeed News.
The banks explicitly expressed an interest in a transitional deal that would see current regulatory arrangements and access to the single market kept in place for a period of several years, they said.
The source also predicted that in the months to come the banks would ramp up their efforts into a fully fledged lobbying campaign. These efforts will include more precise requests to the UK and the EU, as well as reports about uncertainty putting jobs and investment at risk if the demands are not met, the source said.
Separately, a senior EU government official told BuzzFeed News that British officials told them in a bilateral meeting that banks want a five-year transition period.
Earlier this month, Robert Rooney, chief executive of Morgan Stanley, said that despite the emotion around Brexit, "it really isn’t terribly complicated. If we are outside the EU and we do not have what would be a stable and long-term assured commitment that we would have access to the single market, then we will have to do a lot of things that we do today from London somewhere inside the EU 27."
During a debate in parliament last week, Brexit secretary David Davis hinted that the UK could seek a transitional agreement. Davis said the government was “examining all possible options” and will do “anything necessary” to ensure stability for business and financial services.
Responding to a question from a Labour MP, Davis replied: “We have to treat as absolutely central to what we do maintaining the stability of both the City, but also the European financial markets. The European financial markets are a little fragile over the last few years.
“We will therefore do anything necessary. Let me make one point to him as well, in the financial sector as in other sectors, at the point of exit from the European Union, the standards, all the conventions, all of the regulations will be identical.
“So the transition should be capable of being managed very clearly. But we will do everything necessary to maintain that stability."
The secretary of state's remarks came after a report in the Financial Times that suggested the UK could continue to pay into the EU budget to secure a transitional deal.
However, both sources BuzzFeed News spoke to were adamant that no specifics have been discussed with the UK because there can be no pre-negotiations before Britain invokes Article 50, the process to begin formal withdrawal from the EU.
The European government official said that although an arrangement for the banking industry alongside a trade deal on goods may well be achievable, they warned that any deal that allows full access to the single market for goods and services without freedom of movement and the oversight of the European Court of Justice could be challenged legally.
The EU source said any suggestions of transitional arrangements were “speculative”, because politics would drive negotiations just as much as economic considerations.
A number of EU government officials have previously told BuzzFeed News that the introduction of work permits by the UK could make even temporary access to the single market problematic for several administrations.
Some banks will be more hit than others by losing full access to the single market and the ability to trade across the EU from a London HQ and to clear transactions in euros as they currently do.
Still, the entire sector has let it be known it is concerned by the political nature of the negotiation process and the uncertainty of not knowing what new arrangements will look like will hit the industry as a whole, the EU source claimed, adding that suggestions made by some Leave experts that the UK will simply be able to rely on third-country regulatory equivalence is “simplistic” and “speculative”.
There is broad agreement that if Britain leaves the single market there will be job losses in the UK, and banks will not wait until the end of negotiations to trigger contingency plans. However, analysts are divided on the extent of potential job losses and operations that would be shipped out of London.
According to estimates, 1.1 million people are employed in financial services in the UK.
A Treasury spokesperson told BuzzFeed News: "We’re committed to getting a good deal that works for the whole country. The Treasury has been speaking to the financial services industry to make sure that we fully understand the issues affecting it ahead of our negotiations to leave the EU.
"We want Britain to remain a great place for financial services and we stand ready to help the industry maximise the opportunities that leaving the EU presents.”