The full scale of potential UK financial services disruption that the Brexit vote could cause has been revealed, with fresh figures released today showing that 5,500 UK-registered companies rely on “passports” to do business in other European countries.
More than 8,000 financial services companies based in the European Economic Area also rely on single-market passports to do business in Britain, according to figures published by on the UK Treasury’s Select Committee’s website, following correspondence with the UK financial regulator, earlier today.
There are concerns that when it leaves the EU, the UK will lose the passporting rights with some EU members have already stated that they prepared to vote against any moves to allow a continuation. These rights allow financial services companies licensed in one EU state to provide services across the bloc, rather than having to win licences in individual countries.
Commenting on the data, Andrew Tyrie MP, chairman of the Treasury Committee, said: “These figures give us an initial idea of the effects of losing full access to the single market in financial services.
“The business put at risk could be significant. Almost five and a half thousand UK firms are using passports to do business in Europe, and over eight thousand European firms are using passports to provide services in the UK.”
Tyrie pointed that none of the current off-the-shelf arrangements can preserve existing passporting arrangements, while giving the UK the influence and control it needs over financial services regulation as it develops.
As a result, he says, efforts to secure an appropriate arrangement for UK-based firms will be one of the “most challenging aspects” of the negotiations about the UK’s future relationship with the EU.
“No doubt the hard grind of establishing what best protects UK interests is already underway. 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 UK’s lead negotiators,” he added.
Many of the larger US, Japanese and Swiss banks use London as their hub for passporting into other EU markets. Since the Brexit vote in June there has been a degree of uncertainty and many have been drawing up contingency plans for potentially moving some business out of the UK if passporting goes.
Of the 13,484 firms using passporting which were accounted for in a letter from new Financial Conduct Authority chief executive Andrew Bailey to the Treasury Select Committee, 8,008 are using inbound passports, meaning they are using the rights to do business in the UK from another EU or EEA member state.
EU reliance on UK
The fact that there are more companies relying on passporting to do business in the UK than the other way round could boost the case that the EU has as much to lose from restricting UK access to the single market.
The total number of passports held by UK companies amounted to 336,421 because many have passports for different sectors in different countries, the FCA said. The total number of passports held by European businesses for access to the UK is 23,532.
The passports cover a range of activities, including investment banking, corporate lending, insurance, payments and asset management.
The most common passport is the one issued under the EU’s insurance mediation directive, which covers insurance intermediaries. It has been granted to 2,758 companies in the UK and to 5,727 companies in Europe.
In its letter to Mr Tyrie, the FCA defined a passport as “a mechanism through which firms may exercise their right to provide services and their right to establishment”. It added that once authorised by the UK regulator, businesses would be granted a passport that “obviates the need to obtain separate authorisations from other member states”.