At present, anyone authorised to carry out financial services activity within one member state of the European Economic Area (EEA) is automatically authorised in all member states under the ‘passporting’ regime, without the need to obtain separate authorisation from each national regulator. This means that a UK-based financial services firm can at present trade in Europe without barriers – if a UK firm trades in France then its authorisation from the Financial Conduct Authority (FCA) will be sufficient, and there is no need to apply for permission to the French regulator.
However, the UK will of course shortly leave the European Union (EU). The Government has ruled out staying in the EEA, otherwise known as the European single market post-Brexit.
The EEA comprises all 28 EU member states, plus Iceland, Norway and Liechtenstein.
In a speech in London in early March 2018, Prime Minister Theresa May MP appeared to concede that this decision to leave the single market would spell the end of passporting benefits for UK firms. Likewise, firms based on the continent will also lose their automatic right to transact business in the UK.
The passporting regime can only exist if the EEA member states all agree to implement a broadly similar regulatory regime, and the major stumbling block here is that by leaving the EU and the EEA, the UK is saying that it does not wish to be bound by new European legislation after the exit date.
Mrs May said:
“We are not looking for passporting because we understand this is intrinsic to the single market of which we would no longer be a member. It would also require us to be subject to a single rule book, over which we would have no say.
“The UK has responsibility for the financial stability of the world’s most significant financial centre, and our taxpayers bear the risk, so it would be unrealistic for us to implement new EU legislation automatically and in its entirety.”
Latest data from the FCA suggests 5,400 UK firms are using passporting to do business in Europe, while around 8,000 firms based on the continent are using the system to trade in this country.
Exactly what the financial services market in the UK will look like after Brexit remains unclear. Several Government ministers have indicated that they would like to see financial services included in any trade deal between the UK and the EU, and financial services is certainly a vital part of the UK economy. However, the EU has never previously negotiated a trade deal with another country in which financial services are included. Some ministers and commentators have suggested that the UK-EU deal could use as its model the trade deal recently finalised between the EU and Canada, however that arrangement was a ‘goods only’ deal that does not include any arrangements for free trade in the service sector.
Mrs May expressed her hope that financial services could be included in a UK-EU deal by adding:
“The chancellor will be setting out next week how financial services can and should be part of a deep and comprehensive partnership.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.