The head of the British Bankers’ Association has warned that several banks will be looking to relocate away from London early next year due to concerns about the outcome of Brexit negotiations.
The worry is that a ‘hard Brexit’ – which would involve a completely clean break with the EU, and is looking more and more like the most likely option – could mean that UK based banks would lose their valuable ‘passporting rights’. As BBA chief Anthony Browne explained, these rights “allow banks based in the UK to sell services to customers in Europe, and banks based in Europe to sell services to customers in the UK, and access the global financial centre that is London. It also allows banks based in one EU country to set up branches in any other EU country without going through local regulators.”
Losing passporting rights would therefore make it more expensive for banks to conduct overseas dealings, leaving many considering relocating some operations to other major EU financial centres, such as Frankfurt. Writing for the Observer, Mr Browne said that, while it is unlikely that banks will all completely pull out of the UK, several have their hands “quivering over the relocate button”. This would mean thousands of jobs being moved to other countries, with Goldman Sachs already having said that they intend to move at least 2,000 jobs abroad should passporting rights be lost.
According to Mr Browne, the banking industry is likely to be more affected by Brexit (hard or soft) “than any other sector of the economy, both in the degree of the impact and the scale of the implications”.
Since, as he went on, banking “is the UK’s biggest export industry by far” the repercussions of it taking a hit are likely to be particularly damaging.
Foreign secretary Boris Johnson has said that he believes passporting rights could be maintained even if the UK did exit the single market, the head of Germany’s central bank, Jens Weidmann, said the opposite.
Speaking to the Guardian, Weidmann said that these rights are inseparably “tied to the single market” and as such, they would “automatically cease to apply if Great Britain is no longer at least part of the European Economic Area”.
Others have pointed towards alternatives to passporting, including options like ‘third country equivalence’, that effectively gives a non-EU country certain privileges in certain sectors.
Simon Ainsworth, Senior Vice President as ratings agency Moody’s, said that he believes banks would be able to get by without passporting rights by making use of these “third-party equivalence provisions…[which]…may provide firms with an alternative means of accessing the single market”.
Mr Browne disagrees. He said: “the EU’s “equivalence” regime is a poor shadow of passporting; it only covers a narrow range of services, can be withdrawn at virtually no notice and will probably mean the UK will have to accept rules it has no influence over. For most banks, having equivalence won’t prevent banks from relocating their operations.”