Scottish finance firms draw up Brexit '˜contingency' plans

Leading firms from Scotland's '¨financial sector have drawn up restructuring 'contingency plans' to deal with the impact of a Brexit shock, industry chiefs have warned MSPs.

By The Newsroom Tuesday, 29th August 2017, 7:01 am Updated Tuesday, 12th September 2017, 12:08 pm

EU chief negotiator Michel Barnier speaks with British Secretary of State David Davis. Picture: AP

Scottish Financial Enterprise, which represents giants such as Royal Bank of Scotland and Scottish Widows, said the the move was needed to guard against the worst outcomes after the split.

It raises the prospect of separate EU bases for firms, alongside their Scottish hubs. Contingency plans could also involve moving some operations to other parts of Europe or preparing for a financial downturn which may threaten jobs.

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SFE is demanding “certainty” by the end of this year on the kind of transitional arrangements which will operate between the UK and EU in order to bolster confidence among firms. But its call comes as EU negotiating chiefs voiced concerns about the rate of progress of talks.

Scotland’s Finance Secretary Derek Mackay said the intervention shows the danger of an “extreme Brexit” and called for a UK Government u-turn which would keep Britain in the European single market.The need for Scotland’s financial giants to be able to trade freely in Europe through the creation of “bridging and adaptation” periods after Brexit has been emphasised by SFE. It warns that regulators have demanded full contingency plans from firms to guard against a range of scenarios including the most adverse potential outcomes.

“Accordingly financial services companies are putting in place contingency plans and structuring solutions on the assumption that various scenarios could apply,” SFE says in a submission to Holyrood’s Europe committee.

“For those different scen- arios, the extent of any disruption will depend on the way that individual businesses require to restructure their current operating models.”

UK banks have previously indicated that restructuring scenarios could involve creating subsidiaries in the remaining countries of the EU to ensure they can keep operating as they have always done after the split. A report last month warned that this could cost UK banks as much as £13 billion in the years ahead.

“Companies want to keep as much of their activities in the UK as possible, which needs to be done within the confines of regulatory and operational considerations,” the submission from SFE states.

“Companies also want to continue to service their existing EU customers and clients following Brexit, with as little disruption as possible.”

A report by the Association for Financial Markets in Europe last month warned that more than £1 trillion of assets may need to be “rebooked” or moved from the UK to a country in the EU after a hard Brexit unless alternative arrangements can be agreed.

Edinburgh is the biggest financial centre in the UK outside London. With the likes of Royal Bank of Scotland, Bank of Scotland, the Clydesdale, Scottish Widows, Tesco Bank and the newly created global giant Standard Life Aberdeen based north of the Border, it remains one of the country’s key sectors.

It accounts for 86,000 jobs and is worth £8.6bn to the Scottish economy.

The pivotal concern facing Scots finance firms is an end to the “passporting” arrangement which allows them to provide services throughout the EU as long as they are operating from a UK base. It also means global giants such as JP Morgan, which set up a UK subsidiary, can trade freely throughout Europe.

SFE is warning that current agreements with “third countries” and the EU would “not provide a long-term sustainable solution” for the sector.

It wants access to the single market which is “comparable” with the access that firms currently enjoy.

Temporary transitional arrangements will ensure “continuity for businesses and customers” at the point of Brexit, when current trading rules will disappear, it adds.

“Arrangements need to cover the time between the date the UK exits the EU and the date the new partnership agreement is ratified.”

This would provide a “bridging period” starting as soon as the UK leaves and lasting until a new partnership is agreed. A further “adaptation period” would be needed to allow firms to work out the implications of the new deal.

“Transitional arrangements should be agreed as soon as possible, to help manage uncertainty for businesses and bolster confidence,” SFE adds. “Due to the wide variety of activities and business operating models, different companies will require certainty by different cut-off points. Ideally there should be certainty on transitional arrangements by Q3/4 2017.”

This appears unlikely after the EU’s chief negotiator Michel Barnier yesterday voiced frustration at the lack of progress in talks.

Industry chiefs also want closer working ties with ministers to understand in more detail “what needs to be negotiated and put in place, to secure an orderly Brexit”, SFE states.

Mr Mackay said:“This submission further highlights the danger posed by the UK Government’s extreme Brexit plans, which threaten jobs, investment and living standards.