A minister in the Department of International Trade admits Britain is likely to lose financial passporting rights that give banks access to the European Union as a result of Brexit negotiations.
Mark Garnier, Parliamentary Under Secretary of State at the Department for International Trade, made the admission in an interview with Bloomberg News. It is the clearest signal from a government minister that a key tenant of London’s financial success could be destroyed by Brexit and devastating news for banks.
Prime Minister Theresa May’s government appears to be moving towards a “hard Brexit,” whereby Britain would regain control over its borders at the expense of access to the single market. The EU has repeatedly made clear that Britain can’t abandon EU Freedom of Movement unless it also gives up access to the 28-member trading bloc.
Officials have also said that passporting rights, that allow banks to use their local licenses across the EU, are tied up in this trading deal. But the UK government has been reluctant to admit publically that passporting rights could go.
The loss of passporting rights could devastate the City of London. JPMorgan and UBS have both publically warned they may have to move thousands of jobs out of Britain if passporting rights are lost and Goldman Sachs is reportedly considering moving up to 2,000 staff. 5,500 UK firms with a combined turnover of £9 billion rely on passporting rights, according to the regulator.
Barclays CEO Jes Staley told Bloomberg in a separate interview on Thursday that the bank “will do what’s necessary to stay in Europe, we’re looking at what those alternatives are… Barclays is going to look at whatever alternatives we need to pursue.
“Our intent and desire is to stay fully invested in London, fully invested in the UK. But we hope that the political negotiations preserve the access of European capital to invest in Europe. We just have to see.”
Garnier played down these issues, telling Bloomberg that Britain would strike a “new deal” with the EU that would be better than passporting rights. He told Bloomberg:
“If we can create a special hybrid version of that, with a better version of equivalence or a different version of passporting, then that’s what we will try to achieve. What we are not trying to do is fit into an existing box. We are trying to create a new model.”
The problem with this is such a “new model” is both highly unlikely and will take a long time — time banks will most likely not stick around for.
European Council President Donald Tusk is just one of countless EU officials that have signalled they will take a tough stance in Brexit negotiations, meaning a new trade deal would be tough to negotiate. Canada’s recent deal with the EU (CETA) was relatively uncontroversial but took 7 years to negotiate.
And CETA is now dead in the water, scuppered by a region of Belgium that refused to ratify the deal. Even if Britain can miraculously land a “new deal” that works for banks, there’s no guarantee it will be accepted by Europe.
Meanwhile, the head of the British Bankers’ Association last week warned that banks’ “hands are quivering on the relocate button” as “businesses can’t wait to the last minute.” While negotiations are going on, many banks will likely leave.
Even the prime minister appears to be aware of this. A leaked audio recording of Theresa May speaking at Goldman Sachs in May — before the referendum and before she became prime minister — features the then-home secretary saying: “If we were not in Europe, I think there would be firms and companies who would be looking to say, do they need to develop a mainland Europe presence rather than a UK presence?”
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