FCA expects firms to start leaving City by year-end as Brexit talks get underway

Britain’s financial services watchdog, the Financial Conduct Authority, said it expects companies to start making their move to leave the City by the end of the year, just as the UK’s Brexit negotiator, David Davis launched a first round of talks for withdrawal from the European Union with Michel Barnier in Brussels.

The FCA’s chief executive, Andrew Bailey, was somewhat reassuring, saying that although banks, asset managers and insurers were told to have contingency plans to see how they would cope after the final withdrawal in 2019, that he saw no imminent implementation of contingency plans.

“By end of the year firms believe they will be in a position to implement (their plans),” Bailey told reporters on Tuesday.

Agreement on a transition period between leaving the EU and the start of new trading terms would “break” that time pressure, Bailey said.

No transition deal has been agreed, but firms were not talking about actually moving operations yet, a Reuters report said.

The EU’s banking, securities and insurance watchdogs have published guidance for issuing new licences for Britishbased firms wanting to open new subsidiaries, with the aim of stopping unfair competition between national regulators.

Last week the bloc’s securities watchdog ESMA published more detailed guidance for asset managers in Britain who want to continue doing business from inside the EU, saying there must be no “letterbox” companies, meaning a presence of substance is required.

A month after their first meeting, Barnier is expected to press Davis to agree to Britain covering substantial British financial commitments and offer more detail on other British proposals.

With little more than a year to settle divorce terms before Britain leaves, the other 27 EU leaders want Prime Minister Theresa May to rally her divided nation swiftly behind a clear, detailed plan that can minimise economic and social disruption across Europe as its second biggest economy cuts loose from the continent.

“Protecting the rights of all our citizens is the priority for me going into this round and I’m clear that it’s something we must make real progress on,” Davis said.

His office described an offer made by Britain last month as “fair and serious”, though Barnier has dismissed it as falling short of the EU demand that its 3 million citizens in Britain keep all their existing rights for life and have recourse to the EU courts to enforce those rights even after Britain has left.

Working groups will focus on three areas: citizens’ rights; the EU demand that Britain pays EUR 60 bln to cover ongoing EU budget commitments; and other loose ends, such as what happens to British goods in EU shops on Brexit Day.

A fourth set of talks, run by Davis and Barnier’s deputies Oliver Robbins and Sabine Weyand, respectively, will focus on curbing problems in Northern Ireland once a new EU land border separates the British province from EU member Ireland to the south. Some of that will have to wait for clarity on future trade relations.

One key early advance that EU officials hope for this week is for Britain to stop challenging the principle it will owe Brussels money – though how much will have to be argued over and cannot be calculated until Britain actually leaves.

Three more weeks of talks, interspersed with internal EU sessions to coordinate the views of the 27 other governments, are scheduled, from late August until early October. At that point, Barnier hopes to be able to show “significant progress” on the divorce priorities for EU leaders to give him a mandate to launch negotiations on a future free trade agreement.

Meanwhile, in London there was fresh turmoil as a weakened PM May prepared to urge her warring ministers to end damaging leaks against each other over Brexit.

“Now it’s time to get down to work and make this a successful negotiation,” Davis told reporters on Monday as Barnier welcomed him to the Berlaymont headquarters of the European Commission.

Support within the British government for a transitional period appears to be growing, the AFP reported. Chancellor Philip Hammond said that such a period may be necessary “in order to avoid a hard landing” and to “meet the concerns and requirements of both people who want a softer version of Brexit and those who campaigned hard to leave the EU”.

Secretary of State for International Trade Liam Fox said he hoped to negotiate the freedom to sign trade deals with other countries while Brexit talks were ongoing. Brussels has so far offered no sign that such an arrangement would be possible.

The EU has demonstrated increasing confidence in recent weeks, accusing Britain of dithering over whether it wants a “hard” or “soft” Brexit more than a year after the shock referendum that propelled May to power, the EU news portal Euractiv reported.