[LONDON] Britain should negotiate transition arrangements with the European Union to avoid "cliff edge" disruption to financial markets when the country leaves the bloc, a top British banking official said on Wednesday.
Once Britain has begun formal talks to withdraw from the EU by triggering Article 50, the country will leave two years later even if no new trade deals have been agreed - unless every EU member state agrees to extend the negotiation period.
Anthony Browne, chief executive of the British Bankers'Association, said lenders were in a wait and see mode now but unless a transition framework is put in place banks would soon have to decide whether to move operations to Europe, as such shifts could take several years to implement.
"We think there should be some form of transitional arrangements," Mr Browne told a House of Lords committee.
Much is at stake both for London and government coffers.
Financial services generate more than 60 billion pounds (S$104.15 billion) a year in tax, with 15 billion of that from foreign banks in London who depend on an EU passport to sell financial services across the region, Mr Browne said.
But Britain's shock vote to leave the bloc has forced firms to rethink their business strategy, which until now has depended on having the EU passport. Banks are making contingency plans on how they can still serve customers across Europe, if Britain ends up losing those rights.
"What we would like ... is to have as full bilateral access to the European market as close as possible to what we have at the moment," Mr Browne said.
EU leaders have already said they would only grant Britain full access in return for the continued free flow of EU citizens to the country, while the government insists migration will be curbed following Brexit.
Charlie Bean, a former deputy governor of the Bank of England, said he expected eurozone policymakers to mandate that clearing in euro-denominated financial transactions, which is dominated by the City of London, is shifted to the eurozone.
"I think it's certain that we will lose it," Mr Bean said.
Top British bankers met with finance minister Philip Hammond on Wednesday to ask for a clearer idea of what the country's divorce from the EU will mean.
"It is important Britain maintains its status as a great place for financial services and that is why the government stands ready to help the sector maximise the opportunities that leaving the EU presents," Mr Hammond said after the meeting.
Some analysts have said there could be a quick fix thanks to the so-called equivalence regime, under which the European Union can allow access to its markets for countries whose regulations are similar to those within the bloc.
But Mr Browne said this was an untested regime and did not provide sufficient certainty for longer-term security.
"The downside of the equivalence regime is that it can be withdrawn at very short notice unilaterally. That is not a good basis for planning for business," Mr Browne said.
In practice, proving and maintaining "equivalence" generally for UK regulations would be challenging because Britain would be sidelined from European rule making.
Mr Bean said a transition period would mean that banks do not have to worry about starting to move to Europe now, before they know what the final trading terms will look like.
"Article 50 is an unrealistic time frame for financial institutions to migrate to a future plan," said Andy Gray, UK financial services leader at consultants PwC.