Brexit Transition Period Crucial to Protect London as Financial Center: UK Lawmaker

Transitional arrangements after leaving the European Union in 2019 will be crucial for protecting the economy and the City of London’s global role in finance, a senior British lawmaker said on Tuesday.

Nicky Morgan, the new chair of parliament’s Treasury Select Committee, has asked the Bank of England’s top regulator to say if lenders are ready for a “hard” Brexit if there is no “bridge” between leaving the bloc and the start of new trading terms.

“The cliff edge facing businesses in April 2019 is a cause for concern, particularly in the financial services sector,” Morgan said in a statement announcing her request to the BoE.

Morgan, a former Cabinet minister who campaigned in last year’s referendum for Britain to stay in the EU, is the latest senior politician to call for transitional arrangements, which some ministers who want a clean break with Europe oppose.

Faced with such divisions, banks and insurers in London who rely on EU “passports” to access the EU market are pushing ahead with plans to shift some operations from London to the EU ahead of Brexit, to be sure of serving customers there.

HSBC, Britain’s biggest bank, said on Monday it will spend up to $300 million to move jobs and part of its business to Paris.

BoE Deputy Governor Sam Woods wrote to several hundred firms in April to ask how they would deal with an abrupt severing of ties with Europe. Morgan wants Woods to provide her with a summary of the responses by Wednesday, saying the committee may want to scrutinize them.

“I have also asked Mr. Woods for his views on the desirability and design of a transitional arrangement with the EU, to provide more time to negotiate and prepare for a new UK-EU economic relationship,” Morgan said.

“Getting these arrangements right will be crucial for ensuring that the City retains its pre-eminence as a global financial center, and to protect the economy and jobs as the UK leaves the EU,” she added.

A senior banking industry official told Reuters a transitional deal must not simply extend the status quo for a few more years.

“We want to avoid a second cliff edge. It cannot be a pause, it has to be a transition, otherwise you just delay the cliff edge,” the official said.

In her letter to Woods, who is also head of the BoE’s Prudential Regulation Authority (PRA), Morgan asks if firms have identified “common trigger points” for moving operations, and if a hard Brexit posed a threat to financial stability.

She also asks if the PRA has the capacity to directly authorize and supervise financial firms from elsewhere in the EU who want to continue providing services in Britain after Brexit.

Some of those firms may have to convert from branches into subsidiaries with their own cushion of capital — a complex process.

BoE Governor Mark Carney said earlier this year that a transition period would be “highly advisable.” The PRA, which will review the firms’ plans over the summer, said it would reply to Morgan by Wednesday.

(Reporting by Huw Jones; editing by Catherine Evans)