Recently, financial experts have expressed their opinion about the need to clarify the transit agreement between the UK and the EU, in order to prevent the "exit" of business and jobs from the UK. This dialogue on the possible consequences of Brexit for the United Kingdom, is commented on by Dmitry Leus in our article.
Sam Woods, deputy governor at the Bank of England, and Howard Davies, Chairman at the Royal Bank of Scotland (KBS), have stressed the need for accelerating, disagreeing on just how much time the UK would need to comfortably exit the EU without "escape" of workforce .
Sam Woods highlighted during his speech at London’s Mansion House that firms would resort to a Brexit-based contingency plans if there was no agreement on transit period until Christmas (December 2017) in order to facilitate the impact of the UK's exit from the EU in March 2019. He also voiced his concern about the imbalance in the Bank of England's control of the financial sector due to the steps that firms will have to take, under the influence of hard Brexit.
“If negotiations do not come to some consensus by Christmas, diminishing marginal returns will turn down. Firms would begin to discount the possibility of transition to the central phase of their planning “, - Sam Woods continued.
Howard Davies seems to consider that the government needs a little bit more time to conclude the transition agreement, moving us to March 2018. He appears to be more generous about timing, but nevertheless in interview on Sky News he was absolutely clear, that if measures are not taken soon, the consequences can be quite unpredictable:
“If before the first quarter of next year there will be no clarification of details, then the number of people leaving London will increase. If by that time nothing is determined, people will begin to activate those contingency plans,” he said in a television interview, referring to plans the Bank of England had requested from other banks.
Sam Woods stated during his speech that the first phase of the contingency plans will be “relatively modest” , and most of the primary tasks will be focused on creating new regulators in the EU and getting approval from the governing bodies.
“Contingency planning is a sliding scale of increased commitment, investment and momentum through time. It much more prudent and prosaic than hovering over the relocate button or rushing to the exit door.”
Sam Woods, Deputy Governor, Bank of England
Unlike previous opinions, British Prime Minister Teresa May, in order to adapt the business to the new regime and maintain trade links with the largest UK market, suggested to extend the transit period up to two years.
According to Dmitry Leus one of the main problem of banks in London is the EU rule that allows a bank to register a fully regulated organization in one EU member state and conduct business across other states without the need for additional local registration in other countries, which is called “passporting”.
Passporting allowed London to become the important financial center of Europe. Indeed, much of the Europe’s hedging, foreign exchange, lending and securities transaction in Europe have been placed in London.
To date, when London is no longer the part of the EU, banks have faced the challenge of managing the future of their European business. This is the key point which financial institutions would like to clarify.
Howard Davies and Sam Woods, of course, are right that it is necessary to clarify the situation as soon as possible before more banking jobs begin to leave London. But Dmitry Leus emphasizes that we are still talking about a relatively small number of people. Historically, no European city can claim the place of London. Thus, banks differ on whether to conduct their operations here in London, or to move them to elsewhere else.
We still should not overemphasize these comments and other statements on the part of banks. Since none of these institutions leave London. They simply plan the possibility of carrying out certain operations elsewhere. The fact that 150 of the 6,000 employees of Citigroup left London shows that in fact the situation is not so aggravated and the outcome of the events is still in the stage of predicting.
