By Huw Jones
LONDON (Reuters) – The draft Brexit deal agreed between Britain and the European Union won’t stop banks in London pushing ahead with relocation plans because the agreement is far from being ratified, UK financial sector officials said on Wednesday.
The deal agreed between Britain and Brussels on Tuesday includes a “business-as-usual” transition period from March to the end of 2020.
UK ministers and parliament – or the EU itself – have yet to ratify the deal, whose details are dividing the ruling Conservative Party of Prime Minister Theresa May.
“The announcement that a draft Brexit agreement has been reached between the UK and EU is a step forward, but there is still a long way to go before the deal is done,” said Catherine McGuinness, chairman of the City of London financial district.
Banks, insurers and asset managers in Britain are opening new EU hubs to avoid disruption to cross-border services next March, regardless of whether there will be a transition period.
“Our clients are continuing with their planning and execution,” said Joe Cassidy, financial services Brexit lead at consultants KPMG.
“Everybody knows we are just at the beginning and not at the end, and a lot could happen in the intervening period.”
Other industry source said only a legally binding divorce settlement and transition period would prompt banks to pause relocation plans.
“We are not there yet. Until we are, we would expect firms, regulators and governments to continue to prepare for all outcomes, including a no deal scenario,” the source said.
McGuinness said EU regulators should in the meantime urgently mirror efforts by UK regulators to address potential no-deal “cliff-edges in markets.
The European Commission published on Tuesday its no-Brexit contingency plans that include allowing EU customers to continue clearing derivatives contracts in London.
“It’s reassuring to hear increasing acknowledgment that these issues need dealing with but we need firm action, not just words. Firms cannot tackle these issues alone in the time remaining,” McGuinness said.
Cassidy said the plans from Brussels lack detail in some areas, a reflection of how negotiations between Britain and the EU continue.
“It’s a good direction of travel,” Cassidy said.
Swiss bank UBS told CNBC on Wednesday that the next few weeks will be very important for Britain’s financial markets, whose biggest customer is the EU.
“We’re prepared for the worst, and we hope for the best,” said Axel Weber, chairman of UBS, which is spending 100 million Swiss francs on moving some of its 5,000 staff in London to Frankfurt.
Fund managers in Britain fear they won’t be able to continue managing funds worth trillions of pounds across the EU after Brexit but financial services minister John Glen said the deal would minimise “cliff-edge” risks in markets from Brexit.
“The sheer economic weight of our financial services sector is one of the strongest things in our favour. It means we will not retreat to a place of isolation nor blindly run a regulatory race to the bottom,” he told a Managed Funds Association conference.
“We have confidence the issue will be resolved and resolved soon,” he said.
(Additional reporting by John Miller in Zurich; Editing by Matthew Mpoke Bigg)