Financial services could destabilise post-Brexit, Lords EU committee warns

It says the government must urgently clarify what outcome it wants from phase two of EU negotiations and on transitional arrangements, or firms will "be forced to activate costly and potentially irreversible contingency plans".

The committee is urging the government to continue to adhere to international standards and to ensure the continuity of contracts that will need to be serviced beyond Brexit.

The report said: "The Government should develop a comprehensive architecture for the future domestic regulation of financial services. Any future regulatory regime will likely result in a significant increase in the powers of domestic regulators to determine rules and provide non-statutory, but binding, guidance. It is vital that Brexit, in transferring powers to domestic regulators, should not result in an unintended deficit in democratic scrutiny and accountability."

Baroness Falkner of Margravine, Chair of the EU Financial Affairs Sub-Committee, commented: “There is a risk of market fragmentation and financial instability if the UK loses access to the EU, as well as harm to customers and businesses. The UK’s financial services sector is a global asset and both sides should want it to continue serving clients throughout Europe.

"The financial services sector needs greater clarity from the Government about what it wants after Brexit, and it needs it now. A transition period is meaningless without a destination.

“Brexit is an opportunity to tailor the regulatory regime to strengthen the UK’s financial services sector, but the UK must remain committed to the international standards put in place following the financial crisis and continue to shape them to ensure a robust regulatory regime.”