The House of Lords’ EU Financial Affairs Sub-Committee has published a letter that it has sent to the Chancellor of the Exchequer calling for urgent agreement on a post-Brexit transitional period for the financial services sector.

The letter states that:

“Our evidence has been emphatic that, for the financial services industry to be able to continue the orderly servicing of cross-border clients, a transition period needs to be agreed by the end of the year. A transition period is a ‘wasting asset’, and banks and insurers will begin to put into effect contingency arrangements, in anticipation of market access being suspended in March 2019, in Q1 2018. The Secretary of State for Exiting the European Union, the Rt Hon David Davis MP, told the EU Select Committee on 31 October that “We would like an implementation agreement in the first quarter of next year – that being the earliest we could possibly get it – in principle.” Our evidence, however, suggests that leaving an agreement this late would result in a significant number of relocation plans being put in motion.”

The letter adds that:

“One critical aspect identified by our interlocutors is the issue of contractual continuity. Our evidence, from both industry and from the Bank of England, has indicated concern over the scale of novations that would be necessary in the absence of a reciprocal agreement to grandfather existing contracts. These concerns extend, inter alia, to insurance and derivatives contracts, if an agreement on contractual certainty is not reached.”

Baroness Falkner of Margravine, Chair of the EU Financial Affairs Sub-Committee, said:

“The clock is relentlessly ticking. Witness, after witness, told us that financial services industry won’t be able to continue servicing cross-border clients after 2019 if a transition period is not agreed by the end of this year. The UK’s financial services industry will be severely hit – as will EU counterparties.

“The more the Government waits, the more the value of such a period irreversibly declines. A trickle of banks and insurers have started to implement their contingency plans ahead of access to the Single Market being suspended in March 2019. The Government must urgently negotiate a transition period to stop this trickle turning into a flood.”

The Committee has asked for a swift response from the Chancellor to the letter.

View EU Financial Affairs Sub-Committee calls for urgent post-Brexit transitional deal, 9 November 2017