London has long been one of the world’s biggest financial services cities, and in the post-EU era, that status has only become more cemented as the U.K. capitol also became the logical starting point for any number of firms looking to do business in the EU thanks to the policy of passporting between EU member states.
But now Britain is, by all accounts, pushing forward on its plan to bail on the European Union, and that could leave 5,500 U.K.-registered companies in a real fix, since they all rely on “passports” to do business in other European countries. What happens to those firms when Britain really does pull out is the subject of a lot of speculation and a lot of concern.
Some are worried that those firms will lose the ability to be licensed in one EU state but provide services across the bloc, rather than having to win approval in individual countries.
Currently, the U.K. is home to 40 percent of Europe’s assets under management and 60 percent of its capital markets business, according to the British Bankers’ Association (BBA).
“The introduction of new regulatory barriers to business in markets that have, up to now, operated as a single market will increase costs, raise barriers to entry and reduce customer choice,” the BBA report said, adding that U.K.-based banks provided more than $1 trillion in loans to EU players.
Most big U.S., Japanese and Swiss banks use London as their hub for passporting into other EU markets — though all are looking for Plan B locations now as the possibility of a Brexit gets more real.
“The business put at risk could be significant,” noted Andrew Tyrie, the MP who chairs parliament’s Treasury select committee, which published the figures from the Financial Conduct Authority. “None of the current off-the-shelf arrangements can preserve existing passporting arrangements, while giving the U.K. the influence and control it needs over financial services regulation as it develops.”