The chairman of Royal Bank of Scotland has warned that banks could pull operations out of Britain unless Theresa May draws up transitional arrangements for the country’s exit from the EU, reports The Guardian.
Sir Howard Davies said it would be damaging if there was no transitional plan and that banks would have to make decisions based on uncertainty.
Speaking to ITV’s Peston On Sunday programme, he said the US and Japanese banks were concerned by the prospect of a hard Brexit and were drawing up contingency plans.
“I think it is damaging if we don’t get a transitional deal because I think you will then see banks and financial institutions making decisions on the basis of uncertainty.
“They will not wait because they have to make a decision which will allow them to be, to continue to function in the event of a hard Brexit if that’s a possibility.
“So they will not sit back, they are currently making contingency plans and once you’ve got a contingency plan – hey, there is a risk you might implement it one day.”
Davis said the government did not need to reveal its full negotiating position, but needed to reassure the City so Britain did not encounter a “jerky and sudden” departure from the EU.
His comments come as a group of financiers and lawyers based in Milan draw up proposals for a post-Brexit financial services centre for Europe hinged around London and the Italian city.
The aim of Select Milano, an independent organisation endorsed by the Italian government, is not to steal business from London but to help financial services thrive in Europe after the UK leaves the EU.
Its chief executive, Bepi Pezzulli, said one idea that was being drawn up was Dublin as satellite because the Irish legal system was closest to the principles of English law that financiers were accustomed to.
“I don’t think destroying or fragmenting the City of London is a good way forward,” said Pezzulli. “Destroying a cluster is not good. We should instead enlarge the cluster and make London and Milan the head of a new cluster.”
The cluster is a reference to the varied businesses that are based in London, such as banking, fund management and private equity, and the services that build up around them, such as accountancy and legal services.
As a result of Brexit, financial services firms operating out of London are expected to have to shift business – and jobs – to other parts of the EU to enable them to keep access to the “passport” which allows them to sell products across the EU with ease.
Dublin, Frankfurt, Paris and Madrid are among the cities keen to benefit from any exodus from London. There have been warnings, though, including from a Bank of England deputy governor, that New York could end up being the main beneficiary from any loss of business from London.
The Bank of England deputy governor Sir Jon Cunliffe said this month that while it was possible that some activities currently carried out in London would need to move elsewhere in Europe, it would take time for any one financial centre to acquire the “cluster” effect of the UK capital.
Select Milano is targeting one of the largest aspects of London-based business: euro-dominated clearing. Although the UK does not use the euro, London is the centre of €570bn of trading in financial products in Europe’s single currency.
Much of this business passes through the London Clearing House, partly owned by the London Stock Exchange, which is in the throes of a merger with Frankfurt-based Deutsche Börse. The LSE also has links in Milan, owning the stock exchange and operating the Italian clearing house.
Pezzulli, a lawyer, said: “We are not joining a queue to steal business from London.” He suggested setting up a European economic interest group (EEIG), of legal entities able to operate inside and outside the EU.
