On Tuesday, finance leaders said that the United Kingdom must urgently come up with a new plan to avoid leaving the bloc without a deal in just over 70 days’ time and destabilise markets.
Lawmakers in Britain voted by 432 to 202 to dismiss a divorce settlement that is negotiated by the British government and the European Union, a far bigger majority than expected.
The chief executive of banking industry body UK Finance, Stephen Jones, stated: “Time is running out to avoid a chaotic ‘no-deal’ Brexit that would be catastrophic for the UK economy.”
The settlement included a transition period that will span until December 2020 which AFME, a European banking body, said on Tuesday was necessary to ensure an orderly exit from the European Union.
The United Kingdom will leave the bloc without a deal on the 29th of March if no alternative is put in place or Brexit is delayed.
The leader of the City of London financial district, Catherine McGuinness, stated: “It’s all very well having a parliamentary majority against a no-deal Brexit but some form of transition, whether a delay or whatever, is the key thing to focus on.”
Regulators in both the UK and the EU have set out contingency plans for no-deal Brexit hitting parts of the financial market, however, McGuinness said that smaller firms would not be prepared in time.
The continued uncertainty after the vote on Tuesday will imply that insurers, asset managers, and banks will press ahead with opening new hubs in the bloc by March.
The UK financial services leader at consultants EY, Omar Ali, stated: “The result this evening does not change the outlook for the City.”
EY said that financial firms have already announced their plans to move 800 billion pounds in assets from the United Kingdom due to Brexit.
A banker noted: “We have passed the point of no return.”
This week, the chairman of the Royal Bank of Scotland, Howard Davies, is in Frankfurt, he is set to meet with Bafin, the German regulator, to talk about the details of a banking licence for EU-based business.
Nevertheless, some bankers believe that the probability of a no-deal Brexit has dropped in recent weeks.
An economist at Goldman Sachs, Adrian Paul, stated: “Taken together, we thus see the risks to our base case skewed towards a later, softer Brexit, or none at all.”
While the City is one in its appeal for transition, there is less consensus on what should follow.
Bankers hope for a Norway-style deal that will allow single market access in return for contributions to the budget of the bloc and applying EU rules.
Mark Carney, the Bank of England Governor, has said that a financial centre the size of London cannot be a “rule taker.”
McGuinness stated: “When you look at Norway, if you were looking at it as a long-term solution, I would be very concerned about the aspect of rule taking,”