Call for 'bridging period' to prevent market turbulence during Brexit
Britain and the European Union should begin thrashing out a transitional deal for UK financial services as soon as Article 50 is triggered to prevent the City of London falling off a cliff edge, a report has said.
Influential think tank TheCityUK said it is in the economic interests of the UK, the EU and the rest of the world that Britain's financial firms are handed a "bridging period" to ensure market stability.
But it urged the Government to take action to keep European firms in the UK if the EU blocks attempts to secure a transition period.
Chief executive Miles Celic said the organisation told the Government to strike a bespoke Brexit deal that delivers "mutual market access" and keeps the world's brightest talent flowing into the UK.
" We have been clear to stress these should include interim arrangements, access to global talent and expertise, and a bespoke deal based on mutual recognition and regulatory cooperation.
"Ultimately, the best Brexit deal will be one that reduces uncertainty and enables businesses to continue to best serve customers and clients."
The report comes after Xavier Rolet, chief executive of the London Stock Exchange Group, told the Treasury Select Committee on Tuesday the financial services industry should be handed a five-year transition period after Article 50 is triggered.
His call for a Brexit bridge was echoed by Douglas Flint, group chairman of HSBC, who said a two-to-three year transition was needed so financial firms can adapt.
However, the Government's Brexit secretary David Davis said in December he would accept a transitional arrangement "if it's necessary and only if it's necessary".
TheCityUK said the bridging period should stretch from the date the UK exits the EU to the time in which a new partnership agreement is approved.
It added an adaptation period should also begin once the bridging period ends to give financial firms a chance to understand the rules and regulations underpinning the new deal with Europe.
Focusing on London's politically sensitive euro-clearing house, TheCityUK said the operation should be allowed to remain in the capital - and not shifted to a European financial centre - to protect "global competitiveness".
It said the capital's multi-currency clearing has already delivered "capital efficiencies and cost effectiveness for clients throughout the EU and many other G20 jurisdictions".
The call follows warnings from Mr Rolet the EU was singling out the UK and trying to disrupt its euro-clearing operation in a way that does not affect other countries, such as the United States or Japan.
A House of Lords report warned last month 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, including euro-clearing operations.
Prime Minister Theresa May caused the British pound to tumble to a 13-week low against the US dollar on Tuesday following a weekend interview where she hinted the Government may opt for a "hard Brexit" - a process where Britain exits the European single market to take a tighter grip on immigration.
The cost of a "hard Brexit" to revenues in Britain's financial services sector has been estimated to be as high as £38 billion, with up to 75,000 jobs in the firing line. This is on top of a £10 billion hit to the Treasury's tax revenue, according to a study commissioned by TheCityUK.