By Huw Jones
LONDON (Reuters) - Banks' Brexit worries were a key theme in a quarterly survey of Britain's financial services sector, published on Monday, even though business sentiment stabilised in the second quarter, ending a near two-year slide, and recruitment picked up.
The survey by the Confederation of British Industry (CBI)and PwC polled 100 firms across the UK financial sector found that a third of banks said they were "not so confident" of implementing Brexit plans by March. They were also worried about the status of their cross-border contracts during a transition period to the end of 2020.
A transition deal due to start next March when Britain leaves the European Union has yet to be ratified to give financial firms legal certainty.
The future shape of EU-UK trade relations in financial services, Britain's most important economic sector, has also yet to be agreed. The lack of clarity has prompted banks and insurers operating in Britain to open hubs in the EU.
"Brexit continues to drive uncertainty amongst sector players, from the smaller operators to the market leaders," Andrew Kail, head of financial services at PwC, said.
"Location planning, people movements and client retention remain at the top of the agenda, despite the extra time afforded by the transition period," Kail said.
Last week, the Bank of England dismissed criticism from the European Union's banking watchdog that lenders' preparations for a potentially disorderly Brexit were inadequate.
BoE said the EU needed to reciprocate British willingness to legally underpin billions of pounds in cross-border derivatives contracts to avoid market disruption.
CBI Chief Economist Rain Newton-Smith said three years had passed since any significant improvement in overall sentiment in financial services.
"In order for the sector to continue to attract investment and create jobs in the run up to Brexit and beyond, the government must work hard with Brussels to agree a unique agreement that develops the sector after Brexit," she said.
The survey showed that existence of the transition period has not persuaded many financial firms to put Brexit contingency planning on hold.
It also found that business volumes were flat in the three months to early June, but these were expected to pick up over the next three months.
Recruitment rose for a second straight quarter and investment in IT was anticipated to rise at the fastest pace in more than three years, spurred by new services and compliance with new regulation, the survey said.
(Reporting by Huw Jones. Editing by Jane Merriman)