UK government receives warning over Brexit banking exodus

Large banks with a presence in the U.K. feel the country's government is not fully receptive to the financial services sector in the wake of the uncertainty surrounding the Brexit vote , an industry source with knowledge of the situation, has told CNBC.

The source, who wished to remain anonymous due to the sensitive nature of the topic, said a wide range of banks, both big and small, felt that while the U.K. Treasury is very receptive to their ideas about a "smooth Brexit", other government departments are less sympathetic

The source further added that a number of banks are planning to move their operations out of London due to the uncertainty surrounding Brexit.

"Banks with large numbers of customer accounts in Europe and banks financing infrastructure projects, bonds and derivatives in Europe are among those looking to move out of London," the source added.

This comes after the British Banking Authority (BBA) chief, Anthony Browne, wrote an article in the U.K.'s Observernewspaper Sunday saying big banks were preparing to relocate out of the U.K. early next year.

The BBA head said the political and the public debate is taking us in the wrong direction. He wrote that most international banks have project teams working on which operations to move and when, adding that their hands are quivering over the relocate button.

"Many smaller banks plan to start relocations before Christmas; bigger banks are expected to start in the first quarter of next year," Browne wrote in the article.

A number of bank chiefs and market analysts have said in the past that London will continue to remain a major global financial center, but the uncertainty around Brexit negotiations has the financial sector worried.

"Banks are concerned about the uncertainty over 'passporting' rights and want a transition agreement to be put in place that will cover a period of time when the current regulatory framework continues before the new Brexit deal kicks in," the source told CNBC.

Passporting is an important feature of the EU's single market access, especially for banks, as it means U.K. businesses can provide financial services anywhere in the 28-country bloc while being based and regulated in the U.K.

One analyst told CNBC Monday that while banks may have some plans to relocate, they haven't done anything so far.

"Brexit uncertainties are very much relevant for this sector. However, although banks may have some plans under different scenario to relocate, they have done nothing so far to change their behavior after Brexit. Eventually if the financial sector has to move it will be a very severe shock for the economy but for now nothing has really changed," Thanos Vamvakidis, head of European G-10 FX strategy at BofA Merrill Lynch Global Research said.

Vamvakidis further explained that only after "Article 50" is invoked, will we know the impact of U.K.'s decision to leave the European Union. "Article 50" is the section of the EU's treaty governing leaving the 28-country bloc which details what happens when a member leaves the group.

"It is too early to tell. Clearly the headlines have been more towards the direction of 'hard Brexit'. However, we have to wait for 'Article 50' to be triggered and most likely we are not going to see any serious discussions before the German elections. We will know the actual direction of events in 2018. It is too early to tell at this stage."

But while banks may be struggling with uncertainty surrounding Brexit, the European banking index has reversed all post-Brexit losses and is trading at its highest since June 23.

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