City firms will kick off their Brexit contingency plans by the end of the year unless the government agrees a transitional deal with the EU, the head of the UK’s top financial watchdog warned yesterday.
Contingency plans have been put in place by most banks, asset managers and insurers already, Andrew Bailey said.
In the absence of a transition deal, companies will have no option but to start taking action without a clear idea of how Brexit might look.
Bailey also confirmed the Financial Conduct Authority (FCA), of which he is chief executive, was in talks with the government on the need for a transitional agreement.
“The big issue we face is a transitional one, whereby firms are put into a position where they maybe have to put their contingency plan in place before they know the outcome of the negotiations. That’s a difficult position to be in,” Bailey said.
“That’s why implementation of a transitional arrangement to bridge that gap would be helpful. It’s a very difficult situation and one we are talking to the government about.”
An agreement on a transition period would “break” the pressure, he added.
Concerns are growing that London could lose out if business is not given greater certainty.
Yet despite the calls for clarity, the government’s position on a transitional period remains uncertain, with the subject appearing to be another battleground for cabinet divisions.
Chancellor Philip Hammond favours a transitional period of at least two years, in which the UK would retain close ties to the EU.
Yet trade secretary Liam Fox and Brexit secretary David Davis are keen for a shorter transition, during which the UK could agree fresh trade deals with other countries outside the EU.
And earlier this week transport secretary Chris Grayling said the UK could leave the EU with no transitional agreement at all.
“It is beginning to look like a policy bun fight at the moment,” said Anthony Belchambers, chairman of the Legatum Financial Services Forum.
“My worry is that, as the UK faces a hugely important transition, coherence in thinking is absolutely critical. Firms absolutely need time to restructure their businesses against a known outcome, and when you factor in how long it will take for all the governments to agree it, we really only have a year left to cut a deal.
“Transitional [agreements] are absolutely going to be required – whether politicians want to listen to that argument is another matter.”
This week’s round of negotiations taking place in Brussels is focused on citizens’ rights, the UK’s financial settlement with the EU, and Northern Ireland. Any update on a proposed transition is unlikely.
A DexEU spokeswoman told City A.M. the focus for the round of negotiations taking place in Brussels this week was citizens’ rights, the financial settlement and Northern Ireland, and any update on a proposed transition was unlikely.
Brexit secretary David Davis is expected to offer an update, alongside his EU counterpart Michel Barnier, on Thursday afternoon.