LONDON (Reuters) - The British government will do whatever is needed to ensure the stability of the financial services sector and markets during the process of negotiating Britain’s exit from the European Union, Brexit minister David Davis said on Thursday.

David Davies, secretary of state for exiting the European Union, is seen in a still taken from video as he speaks to a committee of the House of Lords, in Westmisnter, London, Britain, September 12, 2016. REUTERS/Handout/Parliament TV/Handout via REUTERS

Britain’s vote to leave the EU has rattled financial institutions based in London, raising the issue of whether they will have to relocate some or all of their operations to maintain access to the bloc’s single market.

That has raised concerns that financial stability could be undermined, with regulators in Britain and Europe liaising over how to minimise this risk.

Addressing those concerns, Davis told lawmakers the financial sector, often referred to as the City of London, would be of “great importance” in the Brexit negotiations.

“We have to treat as absolutely central to what we do maintaining the stability of both the City, but also the European financial markets ... we will therefore do anything necessary,” he said in parliament.

Banks have warned about a “cliff edge” effect, meaning disruptions to links between banks in London and their corporate customers on the continent and legal uncertainty over existing and new financial contracts.

When asked about a possible transitional arrangement designed to cover such a gap between Britain completing its exit talks and agreeing a new trade deal with the bloc -- something the financial sector is lobbying for -- he said all options were being examined.

“In the financial sector, as in other sectors, at the point of exit from the European Union, the standards, all the conventions, all of the regulations will be identical, so the transition should be capable of being managed very cleanly,” Davis said.

Andreas Dombret, an executive board member of Germany’s central bank, the Bundesbank, said he did not expect financial stability in Europe to be undermined in the medium to long term due to Brexit.

There could be some short-term disruptions, however.

“In a transition period, there could well be a time when things become more costly and when not all products are available all the time with the same sort of competition,” Dombret told reporters in London.

BRAINPOWER

With immigration controls high on the government’s list of priorities, banks in London are also worried about not being able to continue hiring foreign workers after Brexit.

But Davis said it would not be in Britain’s national interest to restrict the free movement of highly talented people.

“Clearly it is not going to be in the national interest to restrict the movement of talent, the free movement of brainpower. You can be very, very confident that we will not be limiting highly intelligent, highly capable people’s access,” Davis told parliament.

Separately, the City of London, which administers the “Square Mile”, Europe’s biggest financial centre, published a report it commissioned from consultants PwC which proposed a system of “regional visas” to allow sectors like finance, healthcare and agriculture to selectively hire foreign workers.

“This is not a London solution to a national problem, but actually something that can support growth outside of the capital across a wide variety of sectors,” City of London policy chief Mark Boleat said.

Just over 30 percent of the Square Mile’s staff come from abroad, with 12 percent from Europe, the City of London said.

The PwC report outlined two possible models for discussion -- regional visas that would be governed jointly by local authorities and business, and another that would be governed by a UK government agency.

“We’ll certainly take into account representations from London and from other devolved areas, but clearly we need to come up with a policy that works for the whole of the UK,” said Robin Walker, a junior minister in the Brexit department, when asked about the regional visa proposal.