Let me see your passport, please!
According to Financial Control Authority (FCA) data, over 2000 of British investment and brokerage companies use EU passporting system to gain access to the European markets; somewhat 1000 businesses operate in the UK under license obtained in another EU country.
For many financial firms, passporting is absolutely necessary to do their business. The majority of large international brokers, including FXCM, OANDA, FOREX.com and Interactive Brokers, consider their London offices as a gateway to the single European market.
And here comes Brexit!
Once the UK leaves the European Union, the companies of the financial sector will lose the benefits that come together passporting rights.
What are the options for the brokers that rely on “passports” to do their business in Europe?
1. UK-registered companies will have to win licenses in individual countries for each type of the provided financial services.
2. Foreign companies with European headquarters in the Citi will have to open branches in other EU countries or to move from London to somewhere on the Continent and thus give up the access to the UK market.
3. European companies will have to pay for FCA license to operate in the UK.
All the above options involve additional substantial expenses; by no means all brokers can afford them. Companies, registered in Cyprus, Bulgaria, Latvia and other low-cost jurisdictions will have to do the math to decide whether the FCA license is worth the effort.
He that is not with us is against us?
If the UK and the EU proceed with an amicable divorce and choose to stay friends, Brithish companies are likely to retain access to the single market and to get off pretty cheaply.
Though it looks like Germany is in no mood to play games as the head of Bundesbank Jens Weidmann has already stated that UK passporting right will be lost if the country does not stay at least in the European Economic Area. The leaders of other European countries are not inclined to split the difference with the UK that has chosen to leave the Union.
In this context, the pacific settlement is hardly possible, though the hope dies last, of course.
Lots of big financial companies are already implementing contingency plans. Based on the results of the Financial Times poll carried out among the top executives in the financial industry, in case of “hard Brexit” scenario the revenues of the investment banking and capital market players will be slashed by 20%, or £9bn. The real loss might be much bigger.
New barriers result in new expenses, that will inevitably force some brokers to leave the UK market and limit access for new players.