Financial services companies are drawing up contingency plans ahead of Brexit amid concerns the two-year period for Britain to negotiate a deal to leave the European Union (EU) is too short, an industry body has warned.
Scottish Financial Enterprise (SFE) said the general view in the sector was the negotiating period ” is unlikely to provide sufficient time to negotiate the UK’s exit arrangement, for the UK Government to redefine its ongoing relationship with the EU or provide the lead time needed for firms to effect any required reorganisation or restructuring”.
The warning comes as Michel Barnier, the EU’s chief Brexit negotiator, warned the UK it needs to take withdrawal talks ”seriously”.
SFE stressed that, overall, the financial services industry in the UK was looking to maintain access to Europe’s single market in a way that is ” comparable to the levels of access we currently have”.
In a submission to MSPs on the Scottish Parliament’s Europe Committee, it made clear “c ompanies also want to continue to service their existing EU customers and clients following Brexit, with as little disruption as possible”.
Regulators at the P rudential Regulation Authority (PRA) contacted firms in April this year asking for details of their contingency plans for Brexit “covering a range of potential scenarios, including the most adverse potential outcomes”.
SFE – which represents major banks including the Royal Bank of Scotland and HSBC as well as companies such as Aberdeen Asset Management, Standard Life Investment and JP Morgan – stated: ” Accordingly, financial services companies are putting in place contingency plans and structuring solutions on the assumption that various scenarios could apply.
“For these different scenarios, the extent of any disruption will depend on the way that individual businesses require to re-structure their current operating mode.”
Across the UK, the financial services sector contributes about £120 billion a year to the economy, employing some 1.1 million people.
Scotland is home to the second largest financial services centre after London, with the industry north of the border employing 86,000 directly as well as supporting another 55,000 jobs, according to SFE.
The SFE said the task of converting some 12,000 European regulations and 7,900 statutory instruments into British law would be the “biggest legislative challenge that the UK has ever faced, both in its scale and complexity”.
It added: “This challenge is compounded by the very tight timescale in which to deliver it.”
The UK’s exit deal from the EU and its subsequent relationship with the 27 remaining member states will be ” critical to the UK-based financial services sector and to the wider economy that it serves”, it continued.
SFE stressed that “t emporary transitional arrangements are critical to ensure an orderly and non-disruptive exit from the EU”, adding these will “ensure continuity for businesses and customers at the point of exit, when existing rights and obligations may disappear overnight”.
It called for the Government and the sector to ” work much more closely together to understand in more detail what needs to be negotiated and put in place, to secure an orderly Brexit and an effective transition to a new UK-EU relationship both for FS companies and their customers and clients”.
In addition, it argued “c ontinued access to talent after Brexit is also essential to the ongoing success of the UK-based financial services sector”.