Financial sector must be offered 'Brexit bridge' to stop City exodus, say peers
Financial services firms could desert the City unless a transitional Brexit deal is secured, a Lords committee has warned as it criticised the Government's "sporadic" engagement with the finance industry.
In a new report, a cross-party group of peers said Britain's financial sector must be offered a Brexit "bridge" to prevent companies pre-empting uncertainty and upping sticks to rival financial centres in New York, Dublin, Frankfurt or Paris.
The group urged the Government to draw up a fixed-term transition period as part of the Brexit deal to prevent companies tumbling off the "cliff edge".
In a warning to the EU, Baroness Falkner of Margravine said any pain caused to the financial sector during Brexit negotiations would harm the UK and Europe because key services were more likely to shift to New York.
"Companies may decide that uncertainty is too high a price to pay so they might as well move to Dublin, they might as well move to Frankfurt - that is our great concern," she added.
"It was not a sense of panic, but our sense is that its terribly important for the Government to indicate early on what its negotiating priorities are. 'The bridge' has to be a negotiating priority."
The Lords said the Government needed a "more solid evidence base" for negotiating the position of the financial services sector, while the City lacked a "good line vision" as to how exposed it would be to Brexit.
"The committee got a sense that (Government) engagement has been sporadic and it should be more consistent and there ought to be a clearer view," Baroness Falkner, chair of the EU financial affairs sub-committee added.
Highlighting the issue, she said City Minister Simon Kirby "didn't seem to be gripped by a sense of urgency" during his session with the committee
She said it took "quite a lot of questioning" to get Mr Kirby to finally reveal that the Treasury was the lead department for financial services on Brexit.
Chief among the concerns in the Lords report was the future of passporting rights which London financial firms need in order to trade freely across EU.
The Lords urged businesses to strengthen the Government's negotiating hand by sharing internal analysis about their passporting rights as soon as possible.
It said a failure to do so could leave companies seeking equivalence provisions which are "patchy, unreliable and vulnerable to political influence".
However, it said building a detailed picture may prove a challenge for the Government because some City firms do not fully understand their reliance on passporting.
On the future of euro clearing, the Lords said it would not be in Europe's interest to try and prize away the service from London because it would ramp up costs.
It said the only suitable location for euro-clearing outside the capital would be New York, but such a move does not dovetail with Europe's hopes of repatriating the service into a rival EU financial centre.
"Would our EU partners in effect want bigger costs at the same time as they are trying to push through a capital markets union as they are trying to push through a banking union?" Baroness Falkner added. "Rationally it doesn't flow. So if they are being rational, they wouldn't be doing that. It is to what extent they are being rational actors."
The Lords also stressed the need for businesses to seamlessly move staff around Europe post-Brexit to ensure financial firms and London's burgeoning FinTech sector continue to thrive.
It also suggested the Treasury bolsters its workforce amid concerns that "cracks were starting to show" as it tackles the challenge of Brexit alongside its day-to-day operations.
Responding to the report, Miles Celic, chief executive of TheCityUK, said the details of a transitional arrangement should be revealed as quickly as possible after Article 50 is triggered.
"This is not just an issue for financial services. Many other industries, especially highly regulated ones, share the same concerns.
"Not only is an orderly Brexit in the interests of the UK, it is also important for the EU and the rest of the world.
"Clear interim agreements for the time between the end of the two-year Article 50 period and the implementation of new deal will help to ensure smooth and efficiently functioning markets, investor protection, and certainty and continuity for customers and clients."