The boss of Britain’s financial watchdog has called for a legally-binding transition agreement on Brexit to ensure the UK’s powerhouse financial sector can cope with any sudden loss of passporting rights.
Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), said a transition period needed a “conditional commitment” on behalf of Britain and the EU to help guard against the risks posed by a halt to passporting or contract continuity.
While he said the EU’s view was that these financial risks only faced the UK, he said the nature of contract continuity meant both areas would be impacted if the UK embarked on a sudden exit.
Speaking to the House of Lords EU financial affairs sub-committee, he said: “I think that we have reached a point where it is necessary to have a transition period to allow us time to deal with those risks.
“That is the thing that I think needs to be sorted out PDQ (pretty darned quickly) as they say. I think there is an important issue coming up and I very much hope the reports we are hearing of the more optimistic noises from the December council are true.
“I have to say that I would not expect in any way that we will get a signed agreement on transition, but I do think that we need something that is legally binding us in the sense that it can be applied, and to do that I think it needs to be something like a conditional commitment on both sides, which ideally would be written into the conclusions of the council in December so we could take that forward.”
Financial firms with headquarters in the City have been shifting jobs to finance hubs on the continent in anticipation of the loss of crucial EU trading rights.
Passporting rights allow banks to trade freely across the EU, but Britain looks set to lose access unless it agrees an equivalent regime when it exits the European single market.
Heavy-hitting US banks with offices in London, including JP Morgan and Goldman Sachs, are planning to spread staff across a number of European cities including Frankfurt.
Standard Chartered has committed to expanding or establishing offices in Germany, while Citigroup has notified its bankers of plans to bolster its Frankfurt office, creating 150 jobs, and Morgan Stanley is on track to move as many as 200 staff.
Mizuho will join a raft of Japanese banks which have chosen the German city as an EU hub, including Daiwa, Sumitomo Mitsui Financial Group (SMFG) and Nomura.
In a wide-ranging session, Mr Bailey also called for greater Parliamentary scrutiny of the decisions made by the FCA and the Bank of England as the organisation looks set to inherit more powers from EU authorities following Brexit.
He added: “The question looking forward to the future world becomes, what degree of scrutiny would Parliament wish to have… to scrutinise the role that we would have in the future?
“Given that if you translate the European arrangements literally, particularly the powers that currently rest with the European Supervisory Authorities, (they) would translate to us and the Bank of England?
“Now that’s an open question. I have to say that I think it would make sense, and I think it would make sense from the point of view of our accountability, for there to be the power for Parliament to scrutinise things that we do in the future, and I wouldn’t object, in fact I would welcome that in some ways.
“I would be hesitant in making that the norm, simply because of the sheer volume of activity across the board, not just from us but from every other walk of public policy implementation.”