Financial services are very important to the UK economy. At present, the UK, as a member of the European Union (EU), participates in that organisation’s ‘passporting’ scheme. This scheme allows any firm authorised in a European Economic Area (EEA) member state to trade across the EEA without the need to obtain separate authorisation from the national regulator in each state. The EEA is a grouping that comprises the 28 EU member states, plus Norway, Iceland and Liechtenstein, and together these 31 nations comprise the European ‘single market’.

When the UK leaves the EU, which is scheduled to occur on March 29 2019, the country’s financial institutions will lose their passporting rights. The UK Government appears to have ruled out EEA membership post-Brexit, and has instead indicated that the country will attempt to negotiate its own trade deals with the remaining EU countries, and with other nations around the world.

HM Treasury has now issued a statement on this subject. The statement describes the prospect of the UK exiting the EU without any form of trade deal as “unlikely”, and it remains the case that trade talks between the EU and the UK should commence early in 2018, but the concern is that the EU has never previously negotiated a trade deal with another state where financial services are included in the deal.

David Davis MP, who is leading Brexit negotiations for the UK Government in his role as Secretary of State for Exiting the European Union, has indicated that he sees a trade deal that includes open access to financial markets as hugely important, promising to protect the “mobility of workers and professionals across the continent.”

Mr Davis added:

“Whether this means a bank temporarily moving a worker to an office in Germany, or a lawyer visiting a client in Paris, we believe it is in the interests of both sides to see this continue.”

However, Michel Barnier, the chief Brexit negotiator for the EU, appeared to unequivocally rule out such a deal. M. Barnier commented:

“There is no place [for financial services]. There is not a single trade agreement that is open to financial services. It doesn’t exist.”

He went on to say that this was because of “the red lines that the British have chosen themselves,” and summarised his position by saying “in leaving the single market, they lose the financial services passport.”

However, all sides appear to agree that there will be some sort of transition period, during which the UK maintains access to European markets for a period of around two years after the official date of Brexit. This period would then hopefully allow firms to put alternative measures in place to ensure they can continue to operate across the continent.

The Treasury’s statement says that “the government will, if necessary, bring forward legislation which will enable EEA firms and funds operating in the UK to obtain a “temporary permission” to continue their activities in the UK for a limited period after withdrawal.”

It also remains to be seen what the chief executives of major European financial institutions think of M. Barnier’s position, which would leave them without easy access to the key City of London market.

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.