(Repeats story published late on Tuesday)
* Banks seek transitional period after UK leaves EU
* Focus lobbying efforts on eurosceptics Davis and Fox
* Change of tack reflects growing fears of 'hard Brexit'
* But Davis says there will be no separate deal for London
By Andrew MacAskill and Anjuli Davies
LONDON, Oct 4 As Britain's banks brace for a
"hard Brexit" that could sever their links with the EU market,
they are changing lobbying strategy and focusing efforts on
eurosceptic cabinet ministers to try to secure a transitional
period for their industry.
Since Britons voted in June to leave the bloc, banks have
held a series of meetings with the finance ministry but have had
few formal talks with the government departments dealing with
Brexit, led by eurosceptics David Davis and Liam Fox, according
to several senior sources in the financial services industry.
This is changing as executives increasingly fear Britain is
heading for a clean break with the EU in a drive headed by
ardent Leave campaigners Davis and Fox, rather than a "soft
Brexit" that would see it retain some access to the single
market - an outcome backed by finance minister Philip Hammond.
The sources said they were working to set up meetings in the
coming weeks with the government departments led by Davis - the
secretary of state for exiting the European Union - and Fox, the
international trade secretary.
Banks - which have relied on "passporting" rights to sell
their services across the EU - are seeking a buffer period of up
to five years after Britain's exit from the European Union to
allow them to adjust their businesses, saying this would help
avoid a big shock to financial markets.
The urgency for talks with the eurosceptic ministers has
increased after Prime Minister Theresa May said on Sunday that
she would trigger the process to leave the European Union by the
end of March. She also signalled that curbing immigration from
the EU would take precedence over single market access in the
divorce negotiations with Brussels.
One senior executive in London's financial sector said they
had spoken with Davis on the phone, and had a formal meeting
planned with him in the coming weeks.
"We have spent too long preaching to the converted," the
executive said of talks with the Treasury. "We are losing the
argument. In the last few weeks the government position seems to
be moving towards a hard Brexit."
A senior banker also said they were planning to hold their
first talks with Davis's department later this month.
A spokesman for Davis, who will lead Britain's Brexit
negotiations with the EU, declined to comment.
The scale of the bankers' task was underlined on Tuesday
when the minister said there would be no separate deal for the
financial services industry, denting hopes of a transition
arrangement. "This is about trying to get the best for the
entire country," he said at the ruling Conservative Party's
conference. "We're not going to float London off."
Earlier in the day, he said Britain would negotiate an EU
exit deal that resolved concerns in London's financial sector
about passporting rights.
A spokeswoman for Fox, who is part of the negotiating team
and will also seek to broker non-EU trade deals, said the
minister wanted a deal that allowed British companies to trade
with the single market.
Hammond, who had campaigned to remain in the EU, has shown
his support for London's financial services since he took over
as finance minister in July, saying he will push to retain
access to the single market for an industry that generates about
a tenth of Britain economic output.
But the finance ministry - or Treasury - is less powerful
than in previous governments because May is relying more on
aides, and Davis and Fox are assuming greater influence in the
talks to leave the EU, according to government officials.
Following May's announcement at the weekend, Britain's major
financial industry trade groups, including TheCityUK and British
Bankers' Association, called on the government to push for a
buffer deal to avoid disruption to financial markets.
"What firms in the financial and related professional
services industry will want to see as early as possible is an
agreed and secured transitional period to help ensure financial
stability," said Miles Celic, chief executive of TheCityUK.
Bankers in private, though, are sceptical that the industry
will be allowed up to five further years to arrange their
affairs, on top of the two-year period that will be triggered
when Britain starts the process to leave the EU.
They said any such deal would need to be in place by the
time Britain triggered the exit process next year, to prevent
banks shifting staff and operations out of Britain because they
feared losing access to sell services freely across Europe.
Bankers and lawyers said that was unlikely to happen because
EU members have said no talks about any exemptions or
concessions - even temporary, as envisaged by a transitional
deal - can begin until Britain has formally applied to leave.
Such arrangements have also never been negotiated before and
would raise complex issues, such as whether Britain is legally
inside or outside the EU during a transition period.
"It seems positively impossible that we will get an
agreement on this," said one person involved in the talks.
Much of the negotiations between London and Brussels are
expected to boil down to a trade-off between Britain's controls
on immigration and its access to the EU single market.
Davis and Fox are perceived in the financial services
industry as being less sympathetic to its situation because of
their insistence that Britain must take control of its borders.
Davis said last month that it was "very improbable" Britain
would retain membership of the single market.
"It does make you despair," said a senior executive at one
of Britain's largest banks, referring to Davis's comments on the
single market. "Is he going to be a champion of one of our only
world-class industries? I am not sure he is."
(Additional reporting from William Schomberg, William James and
Kylie Maclellan; Editing by Rachel Armstrong and Pravin Char)