Testimony from HSBC Holdings Plc Chairman Douglas Flint and Allianz Global Investors Vice-Chairman Elizabeth Corley echoed Rolet’s warnings on the need for a longer-term, “grandfathered” transition plan.
Financial services bosses have pleaded for a so-called “soft Brexit” that would somehow preserve access to the single European market as much as possible. While those hopes seem to have faded in recent weeks, the executives in their testimony today reasserted their desire for some sort of transitional agreement to be negotiated by Prime Minister Theresa May’s government to protect London financial companies.
“What is required to maintain stability and customer behavior, no disruptive changes, is grandfathering of the existing conditions for a limited period of time in parallel to Brexit negotiations,” Rolet said.
HSBC’s Flint reiterated his call for a two- to three-year “standstill” or transition period that maintains the status quo, regardless of the outcome of negotiations, to allow banks time to restructure their operations and move, hire and train staff.
“Our regulators and customers expect us to plan for the worst,” the chairman said. “We need to assume what might happen if we end up with a break after the Article 50 process with no vision of where we are going and no transitional arrangement.” Article 50 refers to the trigger for Britain to formally begin the two-year process of leaving the EU.
Before the referendum, the bank said it will move 1,000 investment bank staff to its office in Paris if the U.K. voted to leave. HSBC executives have since softened their stance, saying the number represents a worst-case scenario and the firm can afford to wait and see how negotiations play out by virtue of its already licensed French subsidiary, a luxury many American peers do not have. [...]
A massive shift in trillions of dollars in risk assets and thousands of jobs could begin unless officials agree on a way to, at least temporarily, guarantee the existing framework, Rolet said. The grandfathered period should last more than two years, he said. [...]
He amped up his warnings today: Rolet had previously said 100,000 U.K. jobs are at risk if clearing were clawed away to another territory. Today he raised that number to 232,000, referring to an EY consultancy report, saying two-thirds of them are outside London.
The European Central Bank could mandate euro clearing to move, as it has tried to do before, or use regulatory details to effect the change, he said. Rolet warned in November that talks are already underway within the EU to limit euro clearing outside their jurisdiction, a sign of how badly the bloc wants London’s financial turf. [...]
Flint warned Brexit could lead to not only London losing jobs in financial services, but Europe as a whole. Unless there is clarity soon on new arrangements, U.S. investment banks will be loath to invest more capital in the region considering their home market and Asia are far more lucrative.
“All of us are struggling with what we call Jenga,” Flint said. “I.e., are there individual pieces that don’t look particularly important, but are actually crucial to the underpin of the edifice of the cluster that exists today?” [...]
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