Speaking on condition of anonymity, three senior officials in Prime Minister Theresa May’s team raised concern that an agreement on access for London-based banks to the European market could be impossible.
According to Bloomberg, one minister said discussions about a new regulatory framework for U.K.-based banks should be put aside to avoid holding up conversations about other sectors, such as manufacturing and agriculture. Another official said the idea of leaving a deal on banks until later was already being discussed in London and Brussels, where most of the negotiations will unfold.
Any weakening of the prospects for a trade deal involving finance would reinforce the need for global banks to plan for the worst and activate plans to move jobs and operations from London to other EU cities. Not doing so would jeopardize their ability to business in the EU after Brexit in March 2019.
JPMorgan Chase & Co. is already in talks to buy office space in Dublin, while Citigroup Inc. may move some workers to a new trading unit within the EU.
In opening two years of Brexit negotiations on Wednesday, the prime minister this week drew praise from financial services by calling for a “bold and ambitious” trade deal encompassing the sector. She said the talks “should prioritize the biggest challenges” during technical discussions.
Not So Fast
But her ambitions were dealt a blow Friday when the EU released its draft guidelines for the talks. They said trade negotiations can only begin when “sufficient progress” has been made on the terms of the divorce, EU President Donald Tusk said that was unlikely to occur before the fall.
The EU also cautioned against the U.K. adopting a “sector-by-sector” approach and said establishing a "framework" for a deal was the likely focus.
That leaves the U.K. with just a year to discuss trade given both sides agree they need to wrap up talks by the end of 2018 so that the European and British parliaments can sign off on their accord. Canada’s trade deal with the EU took seven years to line up and lacked big provisions for finance.
A fourth person familiar with U.K. government’s planning said the European Commission and officials in the U.K. Treasury were both considering whether to separate financial services from the main Brexit talks on single market access. A deal covering banking would be the thorniest topic, the person said.
The fact that May’s mentioned financial services in her letter to Tusk is a sign her team knows it’s the most challenging sector for negotiation, said the individual, who did not want to be named discussing sensitive policies. May has said she wants to keep big banks in London after Brexit.
“We’re proud of the U.K.’s world-beating financial sector, and we’ll work to secure a free trade agreement that covers financial services,” May’s spokesman James Slack told reporters in London on Thursday.