City firms are making preparations for a hard Brexit even though they fear the two-year negotiation period for the UK for the EU will not be long enough for them to complete the complex restructuring needed, according to a report published on Monday.
The analysis by legal firm Freshfields found, however, that fewer City jobs may move to other financial centres than might have been expected following the triggering of article 50 – the formal process of leaving the EU – in March.
Commissioned by the lobby group TheCityUK, the report said: “There is a general view across impacted businesses that the two-year period for negotiating the UK’s exit arrangement provided for by article 50 will not be long enough either for the UK government to redefine its ongoing relationship with the EU or for firms to satisfactorily effect any required reorganisation and restructuring.
“Firms are applying a base case of Brexit in two years from March 2017 (ie, the point at which the article 50 notice was served) with no equivalence and no special passporting or access rights agreed. If signalled early in the negotiations, a phased implementation period would be of mutual benefit to the EU and the UK.”
The lawyers at Freshfields did not consider whether the UK would be able to maintain “passporting” rights – the means by which firms can operate across the current 28 member EU borders – because they believe this is not politically viable after Theresa May’s speech in January ruling out membership of the single market.
A number of senior City figures have called for a transitional period after the UK leaves the EU in 2019 to avoid disruption.
Firms have also started to give details in public about how they might tackle the situation and the Bank of England has told firms to provide it with details of their Brexit plans by 14 July and to ready for all possible outcomes, including a hard Brexit.
US bank JP Morgan is preparing to move up to 1,000 bankers out of the City to Dublin, Frankfurt and Luxembourg. Goldman Sachs has said it would need more people in Madrid, Milan, Paris and other EU centres and its boss Lloyd Blankfein said last week that Brexit would “stall” the City’s growth.
The Freshfield analysis found, though, that “firms want to keep as many of their activities in the UK as possible within the confines of regulatory and operational considerations”. They concluded that one single EU member state would not benefit and that firms would react differently depending on how they were currently structured.
James Smethurst, a partner at Freshfields, said that the plans could require fewer staff moves that might have been expected, but the report does not contain any forecasts. One estimate puts the job loss at 230,000 across the entire UK’s financial services sector, not just the City.
Miles Celic, TheCityUK’s chief executive, said: “The UK-based financial and related professional services industry has long been a driver of growth and job creation on both sides of the Channel. It is in our common interest that this role is not just preserved, but promoted”.
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