The lack of clarity as to what Britain seeks from its historic vote and the significant implications vis-à-vis it’s much vaunted financial sector, its largest export, is giving room for increased chaos and confusion. Many of Britain’s biggest banks are already in talk with European regulators for their eventual relocation. Talks are still ongoing and no decision to relocate has yet been disclosed.
With Theresa May’s government willing to stick to the country’s historic referendum to separate from the European Union, large banks in Britain along with other companies from the country’s financial sector have clashed with regard to who should be leading efforts to lobby the government over Brexit.
With Britain’s much vaunted financial sector at stake, failing to present a united front could be significantly embarrassing.
Incidentally, Britain’s largest export comes from its financial sector. To maintain its relevance, it is vital that it retains access to EU’s single market.
There is a growing concern, especially among investment bankers, asset managers, insurers and retail bankers that once article 50 of the Lisbon Treaty is invoked, Britain will lose its right to EU’s lucrative single market.
This issue is highlighted by the fact that 10 of Britain’s biggest banks are concerned that conflicting voices from the industry could murky the waters and dilute discussions.
“To the extent it looks disjointed, there is a degree of inevitability about that as different bodies want different things,” said Gerald Walker, ING’s UK CEO, and a board member of TheCityUK, the main industry group.
After Britain’s historic adventure, a high level committee was formed headed by Shriti Vadera, chairman of the British arm of Banco Santander to represent views of asset managers, bankers, brokers and insurers.
Last month however it was merged with the TheCityUK after a wave of protests from smaller firms, trade bodies and investment banks who felt under-represented in the group dominated by large banks.
“It was a complete dog’s breakfast. There were a lot of egos involved. The groups weren’t connected on content or policy. But it’s now been reined in,” said an employee who works at an international bank involved in the talks.
Following this several lobby groups have now been set up.
State of disarray
“People squabble when they don’t know what to do,” said a lawyer close to the banks. “Every bank seems to feel they are uniquely entitled to speak for the industry.”
As per the head of one of Britain’s largest banks, although Prime Minister Theresa May had the time to meet the heads of U.S. banks in New York, she has yet to make time to meet the heads of British banks.
International banks with significantly large presence in London are feeling left out as they were not invited to a meeting with the finance minister last month which was meant to be a gathering for British financial institutions.
“We have made it clear we are not prepared to be intermediated,” said one of the bankers involved in the meeting.
Bankers are increasingly getting frustrated that even after 3 months after the referendum, there is a clear lack clarity as to what this referendum means and implies.
With British Prime Minister Theresa May saying she would trigger the divorce process by the end of March, the urgency for getting organised is palpable.
According to lawyers and executives, bankers have begun talking to regulators in other European capitals to relocate their business. A firm decision is yet to be taken.
“The government says ‘we will not give a running commentary’ but as banks without more information we can’t plan,” said a senior executive at a top British lender, who has held talks with government ministers.
“If the different groups keep on going either to the government or to Europe saying ‘do this’ or ‘do that’, then all that will happen is government and Europe will say, ‘well the Brits don’t know what they want in financial services’ and so you will get what you are given,” said Angela Knight, a former government minister who headed the British Banker’s association.
Buying Time
In the hopes of catching a break from this chaos, leading banks are asking the British government to negotiate a period of transition, of upto 5 years, for new trading terms to come into effect, once they are agreed.
This is clearly an attempt to buy time, since potentially, the transition period could overshoot the 5 years.
Moreover, such tactics could further complicate matters since during this transition period, would Britain be considered legally inside Europe, or would it be outside?
Last week Viswas Raghavan, JPMorgan’s head of banking for Europe, the Middle East and Africa, had stated that unless there is a politically neutral body, such as the European Central Bank, which comes up with a transitional agreement, the market could become very chaotic.
“So whatever is the new norm, we migrate to it in an orderly fashion. If that doesn’t happen and you pull down the shutters you’re going to have pandemonium,” said Raghavan.
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