About 13,500 financial firms do business into and out of the U.K. under European Union passporting rules, underlining the significance of Britain's access to the single market for companies on both sides of the Brexit divide.
Andrew Bailey, chief executive officer of the Financial Conduct Authority, said 5,476 firms authorized in the U.K. use so-called passports in EU law to sell services via branches or cross-border without a branch in other countries of the bloc. A total of 8,008 firms authorized in other EU states do business in the U.K. under these rules, Bailey wrote in a letter to Andrew Tyrie, chairman of Parliament's Treasury Committee.
The discrepancy between inbound and outbound numbers goes some way to bolster the U.K. banking lobby's argument that European lenders would be hurt just as much as U.K. firms if Britain loses direct access to the single market after it secedes from the EU.
“These figures show just how important passporting is for a wide range of financial services firms,” said Mark Boleat, chairman of the City of London Corporation. “They also demonstrate how the U.K. acts a gateway for firms from outside the EU that want to trade within the single market.”
The EU's passporting system allows a firm authorized in one member state to do business in other countries of the European Economic Area — currently comprising the EU plus Iceland, Liechtenstein and Norway. It's a major attraction for the big foreign banks, such as JPMorgan Chase & Co. and Citigroup Inc., that base their European operations in London.
“None of the current off-the-shelf arrangements can preserve existing passporting arrangements, while giving the U.K. the influence and control it needs over financial services regulation as it develops,” Tyrie said in an e-mailed statement. “Efforts to secure an appropriate arrangement for U.K.-based firms will be one of the most challenging aspects of the negotiations about the U.K.'s future relationship with the EU.”
The FCA said U.K.-based firms hold a total of 336,421 passports to do business elsewhere in the EEA, though they require separate passports for different countries. “We count all passports separately; therefore a firm conducting one type of activity under one directive in 30 countries would be registered as holding 30 passports,” the FCA said.
'Hard Grind'
The number of inbound passports stands at 23,532, the regulator said. The total number includes business activities provided via branches or cross-border without a branch, the FCA said. In addition, some EU directives require multiple passports for different activities. The total provided “counts the passport only, irrespective of whether that passport covers one or multiple activities,” according to the FCA.
The FCA handles passporting notifications under seven EU single-market acts, including the Markets in Financial Instruments Directive, Bailey said. The Prudential Regulation Authority deals with passporting for banks and insurers under the Capital Requirements Directive and Solvency II.
“No doubt the hard grind of establishing what best protects U.K. interests is already under way,” Tyrie said. “This issue needs to be right at the top of the in trays of the Chancellor, the Governor of the Bank of England, and the U.K.'s lead negotiators.”
Bloomberg News
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