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Published On: Mon, Aug 7th, 2017

Meddling EU negotiators 'know they cannot allow a cliff-edge Brexit despite bravado'

Meddling from Brussels means markets have been lumped with new legislation resulting in tremendous complexity and compliance costs that could hamper the very thing they were intended to help.

Stephen Jones, head of the lobby UK Finance, said: “A hard rupture from Day one would be very disruptive on a Continental scale.

“The European banking system does not have the infrastructure capable of absorbing these activities.

“Everybody realises this and I cannot believe that either the UK or the EU would let it happen.

“Wolfgang Schauble’s cabinet totally understands it.”

Governor of the Bank of England Mark Carney recently reiterated that the EU needs London’s money.

He named Britain “Europe’s investment banker” and said half of all the debt and equity issued by the EU involves financial institutions in Britain.

Mr Jones claimed the EU single market is not necessarily what it seems and could be burdened by the latest version of the Market in Financial Instruments Directive [MIFID], which may add more costs and threatens to make the markets more opaque.

He added: “I am far more worried about the damage from MIFID than I am about Brexit.

“So long as the outcome of the Brexit negotiations remain unpredictable, banks must act as if a hard Brexit is coming.

“Some of the fragmentation and inefficiency that would result from a hard Brexit will likely occur even if a closer relationship between the UK and the EU is ultimately negotiated.”

Moving the UK’s financial institution, which accounts for 5.4 per cent of global stock markets, would be a costly endeavour.

JP Morgan estimates that eight big US and European banks face a combined bill of £5billion over the next five years if they have to move capital markets operations out of London.

The former finance director at Santander and Barclays told the Daily Telegraph: “Our working assumption is that EU regulators will be flexible from Day 1, but over time they will require more infrastructure to move.

“They are establishing a presence that could be dialled up significantly if required to by regulators.”

A recent report by consultants Oliver Wyman said that loss of privileged access to the EU market would drive 35,000-40,000 financial jobs out of the UK, half in wholesale banking.

It said: “These new challenges from Brexit will raise difficult questions about the viability of some activities over the medium term.

“Some banks may even choose to withdraw capacity from the European market as a whole and redeploy to other regions, such as Asia or the US.”

It follows Tory MP Nicky Morgan who recently called for a “transitional deal” with the EU after Brexit as she urged a top bank to reveal how it is preparing for a “cliff-edge” exit.

The pro-EU MP asked the Bank of England to say if lenders are ready for a “hard” Brexit if there is no “bridge” between leaving the bloc and the start of new trading terms.

Ms Morgan, the new chair of parliament’s Treasury Select Committee, said: “The cliff edge facing businesses in April 2019 is a cause for concern, particularly in the financial services sector.

“Getting these arrangements right will be crucial for ensuring that the City retains its pre-eminence as a global financial centre, and to protect the economy and jobs as the UK leaves the EU.”

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