London: Banks in Britain are being advised they may be able to sue the European Union if it fails to grant them a staggered departure from the trading bloc using rights from an arcane treaty that usually governs international law.
The advice was given in a document drawn up by some of Britain’s largest law firms for banks lobbying to retain so-called passporting rights that allow them to operate across all the EU out of their London bases.
The document says there are a number of laws giving them rights for a deal, including the Vienna Convention on the Law of Treaties, that gives them “acquired rights” under a treaty that cannot be suddenly withdrawn.
“EU law cites a number of different bases for requiring transitional arrangements,” the document says. “A failure to do so could possibly create an entitlement for an affected EU firm... to take action against the commission.”
Finance companies are pressing Britain and the EU to agree to a transition deal that would keep many of the current arrangements for up to five years to help cushion them from the effects of Brexit.
The issue of a transitional deal has emerged a potential flashpoint in Britain's plans to leave the EU. While some members of the British government and businesses are backing the demands for a deal, some European countries such as Luxembourg have ruled out an agreement.
The Bank of England has warned that an abrupt departure could undermine financial stability, but how a bridging deal could work in practice remains a technical and political challenge.
There is no indication yet that banks are considering using the law to challenge the EU. Other lawyers say it would have limited chances of succeeding.
However, the fact that banks and lawyers are exploring these options shows the work they are doing to find work arounds, mainly to buy time before they decide if they will move some operations from Britain to the continent.
The banks may be able to appeal to the European Court of Justice to ensure that they can continue trading in the single market based on one of the four principles of EU law, which is "legal certainty", according to lawyers.
Another key principle of EU law that can be used to demand a transitional deal is that companies have "legitimate expectations" of a stable regulatory environment, it says.
