Although Britain’s negotiation strategy could revolve around its coveted financial centre, that however could fall flat and be a non-starter if large banks, which form the core of its financial services, were to relocate to other EU states in order to access its passporting system for entry into its single market bloc.
In a clear warning to the British government, the Chairman of the Royal Bank of Scotland has made lucidly clear that if Britain were to not agree to a transitional arrangement with the European Union, the country’s financial services are likely to find themselves in the doldrums.
Britain’s finance sector has been lobbying with the government for an agreement which will temporarily cover the period when Britain starts its Brexit talks and with the acceptance of new EU proposals of a new trade deal. This stopgap agreement should be designed to prevent a “cliff edge” effect which could cause widespread disruptions.
“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,” said Howard Davies to ITV.
“They are currently making contingency plans and once you have got a contingency plan there is a risk you might implement it one day and therefore I think that it is quite urgent.”
Davies reasoned that it would be possible for Britain to get a transitional deal once the EU realizes that companies, in its 27 member states, will be unable to raise finance from London.
“I think there is the basis of a compromise,” said Davies.
However, if companies were to shift their base of operations, this prized card can no more be played.
It is understandable that British Prime Minister, Theresa May has given away little by way of her plans for Britain’s future relationship with the EU, since she may not want to reveal her negotiating position, however, there needs to be more clarity on the transitional period, opined Davies.
With regards to the Royal Bank of Scotland, Davies said, the bank will take a call whether to shift resources out of Britain, once it gets to know whether Britain can still access EU’s passporting system.