Michel Barnier, the European Commission’s chief Brexit negotiator, has warned that the UK’s financial services sector will lose the right to trade freely throughout the EU if, as planned, it leaves the bloc’s single market.

Brexit contingency plans a potential response

In comments likely to spur yet more banks and City firms to implement contingency plans to relocate staff to new European hubs, Mr Barnier said there could be no special arrangements for Britain’s financial services outside the single market.In an interview published on Tuesday by several European newspapers, including the Guardian, Mr Barnier said it was inevitable the UK’s financial services would lose the ‘passporting rights’ that currently enable them to trade freely throughout the bloc because there would be no special arrangements for City firms outside whatever future trade deal is reached.In a blow to Prime Minister Theresa May’s hopes of securing a bespoke deal, Mr Barnier said, “There is no place (for financial services). There is not a single trade agreement that is open to financial services. It doesn’t exist.”Mr Barnier said the outcome was a consequence of “the red lines that the British have chosen themselves”. He added, “In leaving the single market, they lose the financial services passport.”

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Job relocations out of London

Earlier this month, the EY ‘Brexit Tracker’, based on a survey of 222 City firms, found that 68 of them had either publicly confirmed plans to move staff or were actively considering it. EY estimated that current contingency plans would result in 10,500 London posts relocating in the immediate future.Sir Mark Boleat, former chairman of the City of London Corporation, commented, “This research confirms what everyone in British business knows – that not only is Brexit damaging our economy now, but it will get far worse once we leave.“Some financial services can only be provided in Europe by institutions based in countries in the single market. That’s just the rules. The government’s decision to take Britain out of the single market will force firms to move jobs away from the UK to continental Europe.”Brexit Secretary David Davis has called for a Brexit free trade deal that would include financial services. In in the wake of Mr Barnier’s comments, a government spokesman in London said, “The EU has said they will offer their most ambitious free trade approach. We are confident of negotiating a deep and special economic partnership that includes a good deal for financial services – that will be in the EU’s best interests, as well as ours.”The financial services lobby group, TheCityUK, says that unless a credible political agreement is “urgently reached”, more firms will be forced to accelerate their relocation plans “with significant international investment and jobs likely to leave Europe as a consequence”.

Agreement on Brexit transitional deal

Miles Celic, CEO of TheCityUK, said, “Now that talks seem likely to move on to the second phase, EU and UK negotiators must not delay discussing a transitional deal. The longer it takes, the less value it has.“Many firms are already well underway with their contingency plans. Those which remain are ready to press go early in the New Year. There is still time to slow or adapt these plans, but without progress soon, it may be too late.“This isn’t just about business leaving the UK. It is about the very high risk of jobs, capital and inward investment leaving Europe. The resulting fragmented markets will be of benefit to no-one, with costs likely to increase for customers right across the continent.”Omar Ali, EY’s UK financial services leader, said, “Contingency plans have developed significantly over the last year, putting firms in a stronger position to estimate how many UK jobs they need to move.“Firms are working hard to find viable solutions that will allow them to continue to serve their customers and satisfy regulators with the minimum disruption. As a result, many of the jobs that are moving are client-facing, ‘front office’ roles to ensure that companies can continue to serve their clients under EU law from day one.” 

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Read more about the future of UK industry in the Winter issue of our magazine.

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