City must choose which access rights are most important ahead of Brexit talks

Hayley Kirton
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A passport and some money
Bankers might need passports to pull in the cash but do other firms? (Source: Getty)

The City must choose which rights its financial services sector actually needs, and which are just nice to have, before it gets to the Brexit negotiating table.

The report by Open Europe stresses that the passporting regime does not consist of one set of rights and those involved in the Brexit talks should therefore focus on securing rights for firms which need them the most, and potentially stop fight for those which are less important.

In particular, the researchers noted the banking sector, especially wholesale and investment divisions, was highly dependent on passporting. The report estimated around a fifth of annual revenue in the industry was tied to passporting rights.

However, Open Europe found asset managers were less dependant on passports being in place, as many had already set up subsidiaries elsewhere in Europe to overcome other regulatory hurdles. The report estimated that at most seven per cent of assets managed in the UK would be under threat if passporting was lost.

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"The significance of the financial services passport depends on the industry," said Open Europe's senior policy analyst Vincenzo Scarpetta. "It is important to business in some sectors, but has much less value in others.

"To claim that the success of the UK as a global financial centre is entirely reliant on the passport is exaggerated.

"In the upcoming negotiations with the EU, the government needs to focus its efforts on retaining or replicating a passport-like relationship in those sectors where it is most valuable."

Recent figures from the Financial Conduct Authority show almost 13,500 firms rely on passporting rights to do business from their UK base into other EEA markets and vice versa. However, of those firms, just over 8,000 use passporting to access the UK market from elsewhere in the EEA.

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Scarpetta added: "It is not obvious that business moving out of the UK would relocate to another European hub: New York, Singapore or Hong Kong would be just as well, if not better, placed to reap the benefits – meaning Europe as a whole could end up worse off."

What is passporting?
Passporting allows financial services firms which are authorised in the UK to operate throughout the European Economic Area, and vice versa. Without the rights, these firms would not be able to operate in other countries in the same way they do today.

According to Financial Conduct Authority figures, there are 13,484 firms in total which use passporting, of which 5,476 are based in the UK.

A number of banks and other companies are concerned these rights won't be secured in the Brexit deal so they'll need to find other solutions in keep servicing their clients.

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