There’s no room for complacency about the value of passporting rights to UK financial services
For almost three decades, Brits have been wandering around the globe with small burgundy books in their pockets and purses.
Since the June referendum, however, the colour of these travel documents has become a bone of contention for Brexiteers. In fact some have begun campaigning for the return of the old dark blue passport used until 1988 as a symbol of taking back control from the European Union.
Another form of passport has also risen up the agenda. Perhaps surprisingly, passporting for financial services was one of the hot topics during the Conservative Party conference earlier this month.
Few had even heard of this arcane subject before the referendum. Now some MPs and commentators are eager to downplay its importance before we even enter formal negotiations.
Such an approach is problematic. It is essential that we maintain full access to the Single Market so that banks in the UK can continue serving customers and clients in the EU, and vice versa.
This matters because it makes it easier and cheaper for our businesses – as well as French farmers, German manufacturers and Italian fashion designers – to secure funding. The integrated financial market also helps ordinary citizens across the EU get better returns for their savings.
Passporting has underpinned the growth of London as Europe’s financial centre, and helped financial services become our biggest export market by far. The UK exports over £20bn of financial services a year to the EU27, much of it underpinned by passporting rights.
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The nine different passporting regimes in EU law allow financial services companies in one country to establish a branch in another country without having to be separately authorised or regulated. It also allows financial service companies to sell directly to customers across other EU countries.
The alternatives such as equivalence are poor shadows of genuine passports. They only allow a much narrower range of services, offer more limited rights at greater cost and, crucially, can be withdrawn at short notice. The equivalence regime also takes many years to secure and put in place and is subject to political whim.
I recently heard that the French Treasury had told a group of banks it was trying to persuade to move to Paris that, although the UK might have to be granted equivalence initially, the question is how quickly they could force the UK to lose equivalence through adopting new rules.
Meanwhile, a recent report from Oliver Wyman found that reverting to third country status and relying on World Trade Organisation rules would have a significant impact on jobs across the financial services sector and the UK tax revenues it generates.
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This underlines the fact that London’s position as the UK, Europe and the world’s financial centre should not be taken for granted. There is no room for complacency.
Downplaying the importance of passporting goes against the golden rule of negotiations. We should aim high at the outset rather than narrowing our horizons.
There may be arguments for changing the colour of our passports when we leave the EU but ultimately this is a symbolic issue. Passporting rights for financial services is a far more substantive issue; it underpins jobs, investment and growth across the UK and Europe.