LONDON: Britain must negotiate a Brexit bridging deal to avoid a "cliff edge" that forces banks to move jobs before they know what the new trading relations with the European Union will be, British lawmakers said on Thursday.
Prime Minister Theresa May has said she will begin formal "Article 50" divorce negotiations with the EU by the end of March.
The House of Lords' EU committee called on the government and the bloc to commit early to agreeing a transition period covering the time between Britain leaving the EU and the start of permanent trading relations.
"Negotiations on financial services should commence as early as possible after notification under Article 50, and the government should pursue an early announcement on a transitional period," the report said.
"The more the new relationship departs from the status quo, the longer any further transitional period may need to be."
Kishwer Falkner, the committee's chairman, said that even before the divorce talks start, the government should harden up evidence so that it knows exactly what's required for financial services, Britain's biggest economic sector.
Currently 5,476 banks, insurers and asset managers have a "passport" rights under EU law to offer their services across the bloc from a single base in Britain.
Financial services make up 7 percent of Britain's economy and employ 1.1 million people, with EU passporting worth about 40 billion pounds to 50 billion pounds ($50 billion to $63 billion) in annual revenues, the report said.
If passporting is lost after Brexit, "equivalence", meaning mutual recognition of EU and UK rules, offers an inadequate alternative in its current form, the report said.
"The government needs to determine as precisely as possible which firms currently rely on passporting and the degree to which equivalence provisions might provide a substitute," Falkner said.
A bespoke trade deal with the EU could tackle flaws in the equivalence regime and mitigate loss of market access.
It was striking the some firms do not themselves know the extent of their reliance on EU passports, and it was in the national interest that they cooperated with the government to quantify this reliance, the report said.
If passporting is not maintained, the government should seek a deal to bolster the equivalence regime to avoid sudden rule changes by Europe, the report said.
Much of the 50-page report airs the views of banks, government ministers and the Bank of England, such as that firms may relocate to New York rather than to the continent, and Europe's need for London's financial services.