City executives call for five-year transitional Brexit deal

Two of the City's top executives have called for the government to negotiate a five-year transitional Brexit deal that would protect Britain's financial industry.

Speaking on Tuesday (10 January) to the Treasury Select Committee, HSBC chief executive Douglas Flint warned the Brexit negotiations could have a negative impact over the banking industry based in the UK.

Most international banks have their European headquarters in London but there has been speculation some might relocate, should Britain fail to retain access to European passporting rights.

The system allow banks and other financial institutions authorised to operate in an EU country, or a state member of the European Economic Area (EEA), to conduct business across the union.

"The economic system (in London) is like a Jenga tower," said Flint. "You don't know what will happen if you pull pieces out.

"There are two risks to jobs. One is we move the jobs, the other is the jobs are simply eliminated because the market opportunity [in Europe] is unattractive."

Flint also told MPs that leaving the EU single market could lead to a range of issues for the UK's banking sector, such as longer times for processing time payments, while customers, such as smaller businesses, could have to pay for banking services that are now taken for granted.

The HSBC chief added the FTSE 100-listed lender had already started working on a contingency plan, with Dublin, Amsterdam, Paris and Luxembourg all likely destinations for banking operations currently based in London.

Speaking alongside Flint, London Stock Exchange chief executive Xavier Rolet also highlighted the need for an extended transitional period post-Brexit, insisting the current two-year window was not enough.

"What is required to maintain stability is nothing less than a grandfathering of the existing conditions of trade, for a limited period of time," he said.

Rolet added leaving the single market could see a huge number of workers in the financial sector leaving Britain to relocate to EU countries, as foreign firms in particular would continue to deal with their non-UK counterparts under EU rules.

Citing his company as an example, Rolet warned that leaving the single market would lead to LSE members being no longer able to handle euro-denominated financial transactions, which would deal a severe blow to the trade in derivatives between the world's main banks.

"Without a clear path to continued operation of our global businesses our customers simply would not wait," he explained.

"I'm not just talking about the clearing jobs themselves which number into the few thousands.

"The very large array of ancillary functions, whether it's syndication, trading, treasury management, middle office, back office, risk management, software, range into far more than just a few thousand or tens of thousands of jobs. They would then start migrating."

During an interview with Sky News on Sunday, Prime Minister Theresa May claimed the UK could not hang on to "bits of EU membership", hinting Britain would leave the EU's single market.

"Often people talk in terms as if we are leaving the EU but we still want to keep bits of membership of the EU. We're leaving, we're coming out," she said.

Naeem Aslam, chief market analyst at Think Markets UK, said the government was playing with fire and creating more uncertainty.

"The government needs to be consistent with their message so that market can digest all the bad news and move on with it," he said.

"You cannot carry on giving conflicting messages as this puts more traders on the side line."