British banks are demanding a politically explosive “Brexitbuffer” to allow them to remain under European laws for up to five years after pulling out of the EU, it emerged on Friday.
The UK’s financial institutions, who trade on the Continent under EU passporting rules, are calling for the current set-up to stay in place in a transitional deal lasting between three and five years in a confidential document submitted to the Treasury.
Most controversially, the banks are also pressing the Government to accept the rule of the European Court of Justice over the transition period.
That demand is likely to enrage Brexiteers and set the finance industry against the stance of Prime Minister Theresa May, who said in October that “we are not leaving only to return to the jurisdiction of the ECJ”.
“We well understand the political sensitivity to that proposition,” says the document, seen by Reuters and drawn up by “magic circle” law firms Linklaters, Freshfields and Clifford Chance.
The document was penned “to provide technical support to those developing a negotiating position for the UK”.
It warns of the potential shock to the British and European economy from a loss of critical financial services if banks do not secure a transition phase beyond the two-year withdrawal period that will begin when the government invokes Article 50 leaving negotiations next year.
Without an interim arrangement, it claims some banks may not be able to move parts of their operations out of Britain or set up new British subsidiaries in time, threatening an abrupt halt to EU business.
“Transitional arrangements are likely essential,” the document says. “This is important in order to avoid potential damage to the ‘real economy’ that is reliant upon uninterrupted access to financial services.”
The Bank of England Governor Mark Carney also said this week that it would be “advantageous” for firms to have a transition period to restructure after striking a Brexit deal with the EU.
But the calls put the financial sector on a collision course with the eurosceptics, who want a legal break with the EU as soon as possible.
Richard Tice, co-chairman of the Leave Means Leave campaign, which is pushing for a “hard” Brexit, said the banks were exaggerating the potential disruption.
“This is a nonsense. It is just the banks, frankly, not dealing with the issue. The country voted for change, and the sooner they wake up and accept it the better,” he said.
December 9th, 2016: Evening Standard