Brexit: Passporting negotiations will be 'painstaking' and both sides could lose out, says Bank of England's top official

Sir Jon's comments come amid mounting concern that a so-called “hard Brexit” will spark an exodus of jobs from the City of London

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The Independent Online

Sir Jon Cunliffe, the deputy governor of the Bank of England, has warned that both the UK and the EU could lose out if Britain’s financial services sector fails to secure the right to offer services across the EU.

UK banks fear that a hard Brexit will result in the UK leaving Europe’s single market and therefore the loss of crucial passporting rights, which allow them to sell their services freely across the rest of the EU and give firms based in Europe unfettered access to Britain.

Speaking at the House of Lords EU Financial Affairs Sub-Committee on Wednesday, Sir Jon warned that removing passporting would raise funding costs while negotiations for a new arrangement will be a “painstaking process”.

 “If barriers are put up between London and Europe, forcing banks to hold more capital...then that will put up the cost of finance, and financial services , on both sides of the Channel,” Sir Jon warned.

Cunliffe said that the single market is currently allowing UK financial firms to offer services "relatively frictionlessly" across the EU.

“If we’re not in the single market, that means the current way that that relatively frictionless interactions take place won’t continue,” he said.

Sir Jon said the UK could end up creating new trading arrangements with the EU.

But he warned this “would be a painstaking process that would be part of a much bigger negotiation with the EU.”

Sir Jon Cunliffe said the decline in the value of the pound since the Brexit vote does not appear to have undermined the stability of the financial system. However, he added, “that doesn’t rule out that we could have market-induced financial stability effects” in the future.

He reassured senior politicians saying there is “great uncertainty” over the extent to which companies will leave the City, because of Britain’s exit from the EU.

His comments came only a day after Russia’s VTB Bank has become the first big lender to say publicly it will move its investment banking headquarters out of the UK because of the disruption expected to be caused by the country’s decision to leave the EU.

Top bankers from Citi and Morgan Stanley have also warned they could quit the City in 2017 if the UK appears to be heading for a hard Brexit.