With pandemic planning supplanting Brexit planning in recent months, City firms are leaving it late to prepare for the possibility the UK could crash out of Europe without a deal.
The UK has only 130 days to agree a future trade treaty with the EU, yet around 94% of senior managers at London’s largest finance firms – including banks, asset managers, insurance firms and fintech businesses – said they still had work to do “to remain operational” in the event of a no-deal Brexit, according to a poll conducted by consulting firm EY in July and shared exclusively with Financial News.
In the worst case scenario, City firms could lose access to the European markets overnight and find themselves unable to serve their EU clients from London.
A quarter of 138 firms surveyed said they had a “significant” amount of work left to do to prepare.
John Liver, a UK financial services partner at EY, said Brexit uncertainty was now “causing increasing concern across the City”.
It was, he said, “becoming increasingly critical” for firms that haven’t yet finalised their plans for a no-deal exit, to do so.
The latest round of Brexit talks concluded on August 21, with both sides saying there had been “little progress” towards securing a deal. The previous round of negotiations ended in July, with a warning from both sides that a no-deal split was the most likely outcome.
Three-quarters of senior managers at London’s largest financial services firms, polled by EY, believed that any deal secured will not reference financial services.
City executives had hoped the UK would succeed in its pursuit of a Brexit deal for financial services based on an improved version of the EU’s existing framework to non-members, where its regulators declare financial rules equivalent on a piecemeal basis.
But hopes were dashed in June when the EU’s chief negotiator Michel Barnier accused the UK of trying “to keep as many single market benefits as it can”, despite choosing to no longer be a member state.
The EU financial services chief Valdis Dombrovskis warned City firms in August that any equivalence decisions would likely not be made before the end of 2020, and indicated that that would mean that UK finance firms would have to navigate complex access agreements determined country-by-country.
Xavier Rolet, the former chief executive of the London Stock Exchange, told FN that ill-prepared businesses should not expect to rely on “a last-minute accommodation, extension or other temporary standstill agreement”.
“They should remember this: the EU have always seen and considered Brexit as a political challenge,” he said. “[The EU’s] own track record indicates that economic competitiveness and accountability do not sit at the top of its worries.”
“Business should not be surprised if the EU’s final position privileges the political interests of its most influential Member Nations over any short-term economic self-harm, whether real or perceived,” he added.
Simon Gleeson, a partner in the banking and financial regulation practice at law firm Clifford Chance said the likely absence of “a financial services component to the final [Brexit] deal” left much uncertain.
“There is still no clarity as to what the resulting environment will look like,” he said.
“This uncertainty is compounded for firms who are active in multiple EU countries,” he added. “Consequently even the hardest possible no deal simply tips us into a world of country-by-country uncertainty. You can’t be prepared for that – the best option is to maintain flexibility as far as possible.”
Jan Putnis, a financial regulation partner at law firm Slaughter & May, said: “The politicisation of much of the discourse around “no deal” has not helped firms to prepare.”
Policy-makers in the UK had hoped that decisions around the equivalence of UK and European financial services laws would remain technical discussions, removed from the broader political debate around the future trading relationship between the two sides. But EU negotiators have sought to link any financial services aspect of a Brexit deal to broader negotiations.
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