UPDATE 1-UK banks call for transitional trade arrangements after Brexit

* EU exit talks not long enough for banks to decide

* Transition period called for to avoid market disruption (Adds more detail, meeting with government)

By Huw Jones and Andrew MacAskill

LONDON, Sept 7 (Reuters) - Britain should negotiatetransition arrangements with the European Union to avoid "cliffedge" disruption to financial markets when the country leavesthe bloc, a top British banking official said on Wednesday.

Once Britain has begun formal talks to withdraw from the EUby triggering Article 50, the country will leave two years latereven if no new trade deals have been agreed - unless every EUmember state agrees to extend the negotiation period.

Anthony Browne, chief executive of the British Bankers'Association, said lenders were in a wait and see mode now butunless a transition framework is put in place banks would soonhave to decide whether to move operations to Europe, as suchshifts could take several years to implement.

"We think there should be some form of transitionalarrangements," Browne told a House of Lords committee.

Much is at stake both for London and government coffers.

Financial services generate more than 60 billion pounds ($80billion) a year in tax, with 15 billion of that from foreignbanks in London who depend on an EU passport to sell financialservices across the region, Browne said.

But Britain's shock vote to leave the bloc has forced firmsto rethink their business strategy, which until now has dependedon having the EU passport. Banks are making contingency plans onhow they can still serve customers across Europe, if Britainends up losing those rights.

"What we would like ... is to have as full bilateral accessto the European market as close as possible to what we have atthe moment," Browne said.

EU leaders have already said they would only grant Britainfull access in return for the continued free flow of EU citizensto the country, while the government insists migration will becurbed following Brexit.

Charlie Bean, a former deputy governor of the Bank ofEngland, said he expected euro zone policymakers to mandate thatclearing in euro-denominated financial transactions, which isdominated by the City of London, is shifted to the euro zone.

"I think it's certain that we will lose it," Bean said.

EQUIVALENT DOUBTS

Top British bankers met with finance minister Philip Hammondon Wednesday to ask for a clearer idea of what the country'sdivorce from the EU will mean.

"It is important Britain maintains its status as a greatplace for financial services and that is why the governmentstands ready to help the sector maximise the opportunities thatleaving the EU presents," Hammond said after the meeting.

Some analysts have said there could be a quick fix thanks tothe so-called equivalence regime, under which the European Unioncan allow access to its markets for countries whose regulationsare similar to those within the bloc.

But Browne said this was an untested regime and did notprovide sufficient certainty for longer-term security.

"The downside of the equivalence regime is that it can bewithdrawn at very short notice unilaterally. That is not a goodbasis for planning for business," Browne said.

In practice, proving and maintaining "equivalence" generallyfor UK regulations would be challenging because Britain would besidelined from European rule making.

Bean said a transition period would mean that banks do nothave to worry about starting to move to Europe now, before theyknow what the final trading terms will look like.

"Article 50 is an unrealistic time frame for financialinstitutions to migrate to a future plan," said Andy Gray, UKfinancial services leader at consultants PwC.

($1 = 0.7474 pounds) (Editing by David Clarke)