- REUTERS/Francois Lenoir
- Finance lobby group TheCityUK warns transition deal needed by Q1 2018. Value “disappearing by the day” as companies prepare for the worst by moving jobs and capital elsewhere.
LONDON – The value of a Brexit transition deal is “disappearing by the day,” according to a new report from influential financial lobbying group TheCityUK.
“EU and UK negotiators cannot delay discussing a transitional deal any longer if they want it to hold any real value,” Miles Celic, TheCityUK’s CEO, said in a statement on Tuesday.
Jobs, companies, and capital will begin to flee the UK, and potentially even Europe, unless a deal is struck soon, the report warns. If an agreement is left until next year, its value will be hugely diminished as many institutions will have already triggered their Brexit contingency plans.
Banks will make final decisions about moving staff by the first quarter of next year at the latest. Banks need at least a year, if not longer, to set up fully functioning branches and subsidiaries in Europe to maintain uninterrupted EU activities. Britain is due to leave the EU in March 2019, meaning March 2018 is a deadline for many banks to make a decision.
Royal Bank of Scotland chairman Howard Davies said recently that timings are becoming “very tight” to avoid any job moves. Without any clarity over future arrangements, banks will execute their worst-case contingency plans at the start of next year.
“Without early agreement on transition, the market will inevitably fragment, impacting services to UK, EU and global consumers, and likely increase the cost of products and services for customers across the continent,” TheCityUK report argues.
What a transition deal should look like
TheCityUK’s report proposes a two-stage transitional arrangement, starting with a “bridging period” to cover the period form Brexit up until a “new partnership agreement is ratified and becomes unconditional.”
After that, there should be an implementation period for Britain and the EU to put new rules into place.
“This will give firms, their customers and regulators time to consider the implications of the new partnership and to adapt to the rules underpinning it. Such an adaptation period is a common feature in FTAs,” the report argues.
TheCityUK’s warning echoes those of senior figures within the Bank of England. Sam Woods, the chief executive of the Prudential Regulation Authority (PRA), an arm of the BoE, said in a speech earlier in October: “If we get to Christmas and the negotiations have not reached any agreement on this topic, diminishing marginal returns will kick in.
“Firms would start discounting the likelihood of a transition in the central case of their planning,” Woods told the audience at the City Banquet at Mansion House.