Instead Stephen Jones, head of the newly formed mega lobby UK Finance, said Britain’s financial district should instead prepare for any fallout if it loses its passporting rights.
According to the City of London’s top financial consortium, a cliff-edge Brexit come 2019 would most likely pose serious dangers to Europe’s entire financial system, but will be avoided at all costs by the EU and Theresa May’s Government.
Stephen Jones, head of the newly formed mega lobby UK Finance, told The Daily Telegraph: “A hard rupture from day one would be very disruptive on a Continental scale.
“The European banking system does not have the infrastructure capable of absorbing these activities.”
Senior City figures have pushed for an early agreement on a longer transition period, ensuring a smoother way forward for the UK’s enormous financial services sector, stopping banks, asset managers and insurers from making hurried decisions.
However, Brussels has pushed back on the idea, with EU negotiator Michael Barnier claiming that such an arrangement would only be discussed once a “clearer picture” of the UK’s broader post-Brexit relationship with the EU has taken shape.
Passporting rights allow financial services registered in the UK to operate in the European Economic Area.
Firms are granted passporting rights in return for complying with single market rules.
A number of banks are looking to move operations to Frankfurt after Brexit
At present, London handles the lion’s share of European issued debt and equity securities, alongside much of the continent’s syndicated lending and risk management.
Each day, around 40 per cent of the £3.84 trillion ($5 trillion) of global currency trades are booked in London, alongside two thirds of all interest rate Euro derivatives, chiefly on behalf of European firms.
Mr Jones said: “Our working assumption is that EU regulators will be flexible from day one, but over time they will require more infrastructure to move.”
The former Santander and Barclays finance director, took control of the UK Finance consortium, formed last month by the merger of the British Bankers’ Association, the Asset Based Finance Association, the Council of Mortgage Lenders, and three other entities.
He reminded financial spectators it is not yet clear if the EU will demand all syndicated-loans, capital markets and interest rate derivatives based in euros be moved to Europe, or how much “local content” the be demanded.
Mr Jones said: “We just don’t know. We would like mutual recognition where we accept each other’s supervisory regime. If there is the political will, this might be possible. We hear different things.”
A recent report by consultants Oliver Wyman said loss of privileged access to the EU market would see around 35-40,000 financial jobs driven out of the UK, half of those being within wholesale banking.
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The report said: “So long as the outcome of the Brexit negotiations remain unpredictable, banks must act as if a hard Brexit is coming.
“Some of the fragmentation and inefficiency that would result from a hard Brexit will likely occur even if a closer relationship between the UK and the EU is ultimately negotiated.”
The report also claims the negotiation process has reached a “critical stage” for the banking industry, with the majority trying to devise ways to keep some EU-linked trading and risk management based in the UK.
While regulators in EU states have signalled towards leniency for the first ‘interim’ phase of Brexit, they will no doubt tighten the rules over time.