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LONDON, Dec 12 (Reuters) - A deal to bridge the gap between Brexit and the introduction of Britain's new trading terms with the European Union could shield financial firms from any abrupt changes and ultimately keep them based in the UK, a senior lawmaker said.
Banks in Britain have said their fingers are "hovering over the relocate button" because they still don't have a clear idea of what life after leaving the EU will look like.
Financial services is Britain's biggest economic sector, raising more than 60 billion pounds in total taxes annually and banks want arrangements to tide the sector over until new, permanent trading terms are agreed, which could take many years.
Prime Minister Theresa May has said she will begin formal divorce talks with the EU by the end of March.
"Many firms are understandably concerned that in April 2019, the Government's current timetable for leaving the EU, they will be faced with a sudden change in their operating environment," Andrew Tyrie, chairman of parliament's Treasury Select Committee, said on Monday.
"Transitional arrangements could offer firms some protection."
Tyrie, who had backed remaining in the EU, said the committee was asking banks, regulators, trade bodies and experts questions such as whether transitional arrangements were needed and, if so, how should be they designed and negotiated,
"Without an early commitment to them, firms may conclude that they cannot afford to wait, and act pre-emptively to protect their shareholders' interests," Tyrie said.
"This action could include some cancellation of investment and/or relocation out of the UK, to the detriment of the British economy, and important parts of the financial services industry."
A document drawn up by lawyers for banks said that large lenders in Britain want the UK government to allow their industry to remain subject to EU law for up to five years after Brexit.
Banks have said it was also in Europe's economic interests to have transitional arrangements, but hardline backers of Brexit fear such a deal would mean Britain not leaving the EU for many years in practice. (Editing by Alexander Smith)