* Banks planning for life after Brexit
* Transition deal may be too difficult politically
* Banks seek quick agreement on passporting
By Andrew MacAskill, Huw Jones and Anjuli Davies
LONDON, Nov 22 Banking executives have welcomed
hints that Prime Minister Theresa May will push for a
transitional period to help them adjust to Britain's exit from
the EU but they fear such a deal might not work in practice.
With banks planning for life after Britain leaves the
European Union, the executives said a transitional deal may be
too difficult politically because of opposition from eurosceptic
British lawmakers and the need for the remaining 27 EU nations
to pass legislation in their parliaments.
"It is going to be a really tough ask. I think the
government may find it difficult to get support," said one
executive, who has spoken to ministers. "It may not work
The clock is already ticking as banks based in London
finalise plans to potentially shift some operations to other
European countries so they can still serve EU customers. Some
may be tempted to move next year given the uncertain status of
any transitional deal and the time it would take to relocate.
As a cornerstone of any transitional arrangement, banks want
the government to reach a quick deal to preserve passporting -
which allows them to sell services and products freely across
the EU - for up to five years.
May pledged on Monday to address business concerns that
Britain could fall off a "cliff edge" - a sudden exit from the
EU - in 2019, hinting at some form of transitional agreement.
But that could be unpopular with those members of the public and
her party who voted to leave the EU.
"There is a lot of fear among the more passionate Brexiteers
about the idea of a transitional arrangement," said another
executive, who is lobbying the government for more time.
John McFarlane, who chairs the lobby group TheCityUK as well
as Barclays, said May's comments were an appreciation of the
financial sector's need for a deal and it now needs clarity on
how it will work.
"Therefore the question is: what is it and what does it
apply to? It is not necessarily for everything," MacFarlane told
Hardline supporters of Brexit oppose any bridging
arrangement, worried it would last for years and mean Britain
would still contribute to the EU's budget and remain subject to
the European Court of Justice.
But a transitional deal that did not involve some form of
extension of so-called Article 50 divorce talks, which May has
said will start by the end of March and last two years, would
not offer enough legal certainty for banks.
"Transitional arrangements are more of a plea rather than a
scheme available off the shelf and we don't know how it would
work," said Etay Katz, a lawyer at Allen & Overy who is advising
banks on Brexit restructuring.
Pavlos Eleftheriadis, who teaches European law at Oxford
University, said any transitional deal involving services such
as banking will require a new treaty that must be ratified by
all the remaining EU members.
"I am not saying it is impossible, but it is almost as
difficult to do a permanent deal," he said.
A European diplomat said some EU states are wary about
giving Britain a long period to adapt to life outside the bloc,
fearing a lenient transitional arrangement could become
permanent as final trading terms can take years to agree.
Belgium's Wallonia region last month held up a planned
EU-Canada free trade agreement, an indication of how achieving
consensus is vulnerable to horse trading.
Executives say that for some banks, it could take years to
make arrangements to operate all their business lines in the EU.
For that to happen seamlessly, Britain would need to remain in
the bloc during that window to avoid legal uncertainties in
banks' dealings with clients.
Alex Wilmot-Sitwell, who heads the European business of Bank
of America Merrill Lynch, likened moving operations to handling
"The materials that are being moved are risky materials, and
you don't move nuclear waste in a race," he told a parliamentary
committee last month. "You do it in a very carefully coordinated
and managed process."
To add to the banks' uncertainty, the government says it has
not yet made up its mind on whether to push for a deal.
Two finance executives said ministers told them a final
decision would only come after they have considered demands from
While the Treasury backs the banks, other departments,
including the Department for Exiting the European Union, want to
wait and see if a deal has support among other industries before
making a final decision, the executives said.
(Editing by Giles Elgood)