Britain’s financial watchdog has not had any applications as yet for licences from European Union financial firms operating in Britain which may lose the right to “passport” their services into the country once it leaves the EU in March 2019.
“We haven’t had any yet. I would say this is still talks about talks in some ways,” Financial Conduct Authority Chief Executive Andrew Bailey told the Reuters’ Financial Regulation Summit on Monday.
Almost 13,500 banks, insurers, asset managers and other financial firms use EU passporting rules that allow easy access between Britain and the rest of the bloc. This highlights the importance of the issue in Britain’s EU exit negotiations. More firms in Europe were using passporting than UK-based firms.
There are about 8,000 firms using “inbound” passports issued by the other 27 EU states to allow them to do business in Britain or elsewhere, and nearly 5,500 firms using “outbound” passporting issued by UK regulators, according to FCA data published in September 2016.
Bailey said the number of passports rose over the last year, but he was unsure what conclusions to draw from this increase and whether those with passports would want to maintain them in some form for European business.
“Now this goes back to say getting a hold on how many people are actually using them,” Bailey said. “So when you raise the bar in terms of the mechanics of actually getting the access, how many would say we’re not actually using it, we’re not going to do that, we don’t know.”
With Brexit less than 18 months away and the details of any transitional deal still unclear, the clock is ticking for banks in Britain. Some have already announced plans to open hubs in the EU after March 2019 to be sure of maintaining links with European customers.
“If everybody who now currently has a passport to come into the UK wants to have an authorisation in future – aside from whether it’s a branch or a subsidiary or what – it’s a big number,” Bailey said.
“Certainly in our Brexit planning … this is a big issue for the moment as it were. This is one of the biggest areas of potential activities, how we go about the authorisations.”
Last Friday, British Prime Minister Theresa May set out a plan to keep full access to the EU’s single market for two years after Brexit to try to reassure business.
Bailey welcomed her comments and said he hoped that Britain’s divorce talks with Brussels would now “put substance” to a transition period.
“That would be helpful both for the industry and us as well,” Bailey said.
“One of the things that would have to be settled would be … what would be the position of the UK in terms of new EU legislation and rules that come on stream during the transition period,” Bailey said.
“That’s a question that will have to be defined and answered and come out of negotiations. Clarity would be my strong preference.”
The Bank of England’s Prudential Regulation Authority (PRA), which jointly licences banks with the FCA, has said that branches of EU banks in Britain may have to become subsidiaries, a costly undertaking as it involves building up a local layer of capital.
Bailey, a previous head of the PRA, said “we need to know the shape of the future” before putting such requirements into effect, with much hinging on the political deal between Britain and the EU.
“What are going to be the rules of engagement? On the EU side it is how much of an open market are they going to have, what are they going to insist on?”
Britain already allows banks from outside the EU to operate as branches in the UK, but it was up to politicians to decide if branches of EU banks in Britain could simply be placed under this regime, Bailey said.
The PRA asked banks to submit Brexit contingency plans by July. Bailey said there were still a lot of “moving parts”, such as what arrangements will the EU put in place for UK-based firms.
He expects that the FCA will take over direct regulation of credit rating agencies and trade depositories, which currently come under EU regulators.
Source: Reuters (Reporting by Huw Jones, editing by Louise Heavens and Jane Merriman)