EU27 banks may not know where to turn post-Brexit, as UK leaving the EU triggers declustering effect of financial services industry, warns AFME

Hayley Kirton
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AFME also warned the two-year Article 50 period is exceptionally tight (Source: Getty)

Europe could be left without a hub for financial services post-Brexit, as the sector and the industries which support it become more scattered across the continent, a report out today warned.

The study by the Association for Financial Markets in Europe (AFME) cautioned that, because many lenders were now banking on a so-called hard Brexit with limited access rights to the Single Market from the UK, it could encourage them to spread operations across the EU.

However, this, the report warned, would "increase fragmentation and reduce the current benefits available to them of being able to cluster activity in a single European hub".

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AFME also warned this declustering effect could also cause problems for regulation and compliance staff who may not have the knowledge and experience of wholesale banking red tape to handle the fallout.

"In much of the EU27, expertise in markets supervision is in relatively short supply," the report read.

The report stressed there was still much concern the industry could be left with a cliff-edge scenario, where rights currently enjoyed in the UK were snatched away overnight. Given the relatively short two-year Article 50 period, AFME also called for transitional arrangements to be set up.

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"Financial stability and market efficiency must be safeguarded during the Brexit implementation process and thereafter," said Simon Lewis, chief executive at AFME . "These are essential ‘public goods’ for the European economy.

"Given the tight Brexit timescale dictated by Article 50, market participants and regulators are already having to consider important decisions amid considerable uncertainty."

Speaking with City A.M. last month, Lord Whitty, chair of the House of Lords EU Internal Market Sub-Committee, said one of the main draws of London was its finely-tuned offering of professional services firms to complement the financial industry.

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Whitty cautioned failing to secure a workable Brexit deal for these industries would effectively undermine any agreement obtained for the financial sector.

Others have also warned a bad Brexit deal would hurt the EU as much, if not more, than it would the UK.

Bank of England governor Mark Carney said in January that if the UK failed to secure a clear Brexit deal with adequate transition periods, "the consequence [of this] would be greater for Europe than the UK".

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A day later, junior minister for the Brexit department, Lord Bridges of Headley, echoed Carney's words by saying: "We want to have a smooth and orderly exit and, as the governor of the Bank fo England pointed out yesterday, it is as much in our interest as it is the rest of the European Union."

AFME's report has been published a week after Prime Minister Theresa May triggered Article 50, formally starting the UK's withdrawal process from the EU.

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