Banks could start to make irreversible moves to transfer staff from London to rival cities in the EU unless there is clarity over Brexit by the end of the year, the Financial Conduct Authority chief executive has told MPs.
Andrew Bailey, in a wide-ranging appearance before MPs on the Treasury select committee, said contingency plans being implemented by major banks involved leasing office space, which could be reversed in the event there was not a hard Brexit, or a transition deal was agreed.
“They regard those as fairly reversible,” said Bailey. “Where it starts to get more irreversible – or harder – is in terms of staff.”
He said there was a need for a “strong commitment” to a transition period by the end of the year – echoing the views of Bank of England officials and City lobby groups.
From 1 April 2019, City firms would need to keep operating inside the EU and would need to plan in advance and either recruit locally or convince staff to leave London, said Bailey.
“So that is why they – and we – tend to take the view that the end of this year, beginning of next year, is the point at which these sorts of things start happening,” he added.
Goldman Sachs has begun to implement contingency plans by taking the top eight floors of a 37-storey block under construction in Frankfurt, even though it is building a new European headquarters in London.
On Monday Lloyd Blankfein, the boss of Goldman, tweeted an aerial shot of the new £350m building under construction in London, with the words “expecting/hoping to fill it up, but so much outside our control”. The BBC reported that the Bank of England believed up to 75,000 UK financial services roles could be at risk.
The committee of MPs started its evidence session with Bailey in often hostile questioning over the regulator’s handling of a report into Royal Bank of Scotland’s treatment of small business customers in its now defunct global restructuring group (GRG).
Bailey has refused to publish the so-called section 166 report commissioned from the consultancy Promontory to look at allegations RBS deliberately wrecked small businesses to make profits.
He told MPs that RBS had not accepted some of the findings of the report, which had added to delays to the report which was commissioned three years ago.
“The report is strongly critical of RBS. It is frankly unfortunate that RBS has not accepted that more readily. I think they should do,” said Bailey.
The committee published a letter from RBS chief executive Ross McEwan in which he said the bank “deeply regret the mistakes we have made in the past” but disputed parts of the report.
Last week the FCA said it was considering whether it could take action against the bank and Bailey told the MPs it “could lead to enforcement action” – which could mean sanctions such as fines.
Nicky Morgan, the Conservative MP and chair of the committee, said she would call RBS to give evidence. “One of the FCA’s objectives is to promote and enhance integrity of the UK financial system … Widespread bad practice by a bank like RBS surely goes to the heart of attacking the integrity of the UK financial system,” said Morgan. Consumers’ mental health and family lives had suffered, she added.