The organisation Open Europe is of the opinion that the British government must do all in its power to maintain the passport allowing banking groups based in London to carry out their activities throughout the European Union after the United Kingdom leaves the EU.
"The government's primary objective, with regards to financial services, should be to try and keep the CRD IV passport", given the importance of the banking sector and the fact that there can be no equivalency of the rules, states the British think tank in a report published on Monday 17 October. In order to do this, the organisation recommends negotiating a specific bilateral agreement – similar to the one concluded between the EU and Switzerland in the insurance sector – or a specific chapter included in an exhaustive free-trade agreement, in that the European banking prudential rules (CRR-CRD IV legislative package) do not authorise a decision on the equivalency of the rules once the United Kingdom is a third country.
Open Europe notes that the current passport is the one that works the best for the British banking sector, where activities (bank deposits, loans and payment services) are governed by the European prudential rules. Around 20% of the turnover – or between £23 billion and £27 billion, according to the consultancy Oliver Wyman – of the British industry is linked to holding the banking passport.
As regards wholesale banking activities, the UK should try to have recognised the equivalency of its legislation with the MiFIR regulation in order to ensure that many investment banking services can continue to be provided from the UK, particularly by third-country banks located in London.
For asset managers, Open Europe feels that there is a less urgent need to negotiate new agreements as the rules theoretically allow funds to be managed outside the EU as long as they have a relative presence in the EU. Many British managers are already operating via two separate investment vehicles, one domiciled in the UK and the other elsewhere in the EU, frequently in Dublin or Luxembourg.
In the field of insurance, the British think tank notes that the prosperity of the industry is based less on the European markets and that, as regards these European activities, the industry tends to operate via subsidiaries. The organisation observes that this is unsurprising, as there is basically no single insurance market as such in the EU. Even though losing the passport is unlikely to be a matter of life or death to the UK insurance industry, the organisation recommends that the UK authorities negotiate the equivalency of the British rules with those of the EU in order to guarantee a painless transition, and a bilateral agreement for Lloyds of London.
For more information, see: http://openeurope.org.uk/intelligence/britain-and-the-eu/how-the-uks-financial-services-sector-can-continue-thriving-after-brexit . (Original version in French by Mathieu Bion)