Brexit must be agreed by end of year to avoid firms fleeing abroad and causing new financial crisis, warns London Stock Exchange boss 

Xavier Rolet, CEO of the London Stock Exchange Group.
Xavier Rolet says European leaders who demanded tighter global regulation after the financial crisis are now threatening to 'fragment' those same standards  Credit: Teri Pengilley

France and Germany risk starting a new financial crisis if they try to use Brexit to dismantle the London-based heart of the global economy “just to make a political point,” one of the City’s most senior figures has warned.

Xavier Rolet, chief executive of the London Stock Exchange Group, says European leaders who demanded tighter global regulation after the 2008 financial crisis are now threatening to “fragment” those same standards to punish Britain for Brexit.

Writing for The Telegraph, Mr Rolet calls on the Bank of England and regulatory bodies in Europe to speed up talks on regulation to ensure that the carefully constructed system of global regulation developed to stop unexpected risks emerging does not collapse.

He calls for an "update" on the progress of these talks to reassure international financial firms.

The head of the stock market uses the article to welcome Theresa May's call for a transition period to give business certainty but said that the details must now be agreed before the end of the year. British jobs will begin relocating abroad next year if the uncertainty continues, he warns.

His intervention came as it emerged that Germany is secretly working on proposals for a “comprehensive free trade accord” with Britain. There is also evidence that Brussels is prepared to begin talks within the EU over what a future round of trade discussions may look like - but it will not agree to formal negotiations beginning.

On Thursday, Theresa May will travel to Brussels for a crucial meeting with EU leaders who are now under intense pressure to begin trade talks amid fears over the impact on the global economy caused by the diplomatic stand-off.

With Brexit talks deadlocked, David Davis, the Brexit Secretary, accused Brussels of using time pressure to see if “they can get more money out of us”.

His counterpart Michel Barnier, the EU’s chief Brexit negotiator, hit back by blaming Britain for the delay, saying Theresa May’s decision to call the snap election had cost time.

Amber Rudd, the Home Secretary, also appeared to hand European leaders a boost by saying that a 'no deal' Brexit was 'unthinkable' - despite Mrs May's claims to the contrary.

Mr Rolet, one of the most influential figures in the City, will on Wednesday address a cross-party group of MPs and business leaders when he gives a speech on Brexit in the Palace of Westminster.

He will use it to make a direct appeal to European leaders not to make “protectionist” moves to strip London of its status as a clearing house for trades carried out in euros - a move first mooted by France’s then-President Hollande within days of the EU referendum.

London has been the global centre for clearing - in which financial trades are carried out through a third party - since the G20 demanded better financial regulation in 2009.

Theresa May meets with Jean-Claude Juncker 
Theresa May met with Jean-Claude Juncker this week Credit: Virginia Mayo/AP

World leaders including Angela Merkel and Michel Barnier were among the architects of the system that put London at the heart of the clearing system, which makes it far easier for regulators to monitor millions of daily trades through a centralised system of global financial regulation. It also saves companies billions of pounds by pooling risk, giving an extra boost to the economy.

Mrs Merkel said at the time that “we have to make sure we learn the lessons of the crisis and make sure it is not repeated”.

Mr Rolet says taking back euro trading into the Eurozone would “increase systemic financial risk” because “the global monitoring of risk would be impaired and that risk more heavily concentrated”.

He adds: “To those who want to dismantle rather than build on a system of global regulatory standards that protects taxpayers and reduces the cost of capital we say: do not willingly diminish systemically important global financial market infrastructure just to make a political point...

“This ability to globally monitor and reduce risk is why we are opposed to those who want to fragment this system of regulatory cooperation.  

“Days after the referendum then President Hollande called for euro-clearing to be stripped from London and only be permitted within the Eurozone, saying lessons must be learnt. Many others in Europe have echoed these calls and the European Commission themselves have not ruled it out as an option.”

Mr Rolet also says it is “imperative” that City firms are given certainty on the duration and nature of the Brexit implementation phase so they can plan ahead.

He says that regulatory systems that will change as a result of Brexit “cannot be replicated overnight” so businesses will simply make their own arrangements and move to the EU if they are not given sufficient notice.

“Business cannot risk a cliff-edge being so near before they start accelerating the migration of functions away from the UK to ensure they can participate in the global market,” he says.

Mark Carney, the Governor of the Bank of England, told MPs on Tuesday that  Europe’s financial stability would take a bigger hit than Britain’s in the event of a “no deal” Brexit.

He said: “In an uncooperative outcome the UK will have more capacity, individuals, collateral. The EU will be short of financial services because not all of that capacity will go across.”

It has emerged that Germany’s Foreign Ministry is quietly drawing up plans for a comprehensive free trade deal with Britain.

A draft paper dated October 11 states that the EU should aim for a broad agreement that includes cooperation on agriculture, fisheries, energy, transport, research, security and criminal justice.

It says: “We share the UK’s desire to secure a close partnership with the Union after its exit that covers economic and trade relations.”

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