The potential loss of the EU “passport” remains a looming issue for the City of London, as well as continental financial centres, as Britain prepares to leave the bloc.
That’s one key finding in a report issued by the Economist Intelligence Unit on how Brexit is likely to impact the UK’s six key industries, including financial services.
The EIU report, published on 26 March 2018, states:
“After Brexit our view is that London will still retain the status of one of the world’s leading financial centres, along with New York and Singapore, and it will also remain Europe’s leading financial hub after Brexit.”
That said, it did also note that there is a very strong interdependence between the UK and other EU financial centres and this very interdependency makes finding a solution that accommodates the interests of both parties is essential.
Its next statement was that, although the financial sector drives the UK economy, “…it will not escape completely unscathed.”
The EIU cites one of the main areas of concern for the UK is that of passporting, where the financial services firms from one member state can provide services to clients in other member states without the need to obtain a local license in each country. The Brexit vote will mean that UK firms will no longer be able to benefit from this advantage.
Unfortunately for the UK, “EU authorities remain unreceptive to requests for ‘cherry picking’ the appealing aspects, such as passporting, of the single market.”
How to solve this problem? The UK favours the idea of access to the single market via an agreement based on “mutual recognition and regulatory equivalence”, supported by “dispute mechanisms overseen by both sides.”
However, the EU has not yet agreed to this proposal, there being no precedent for such an arrangement. According to the EIU report:
“The EU wants to limit the deal to the kind of regulatory equivalence it already has with the US, which keeps regulatory power firmly in the hands of the EU.”
This solution, however, is unlikely to find favour with Brexit supporters looking to “take back control”.
A thorny issue on one the most important concerns for the UK financial sector as the country sets to step away from one of the greatest advantages of the single market.