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A minister in the Department of International Trade declared the UK will most likely be deprived of its financial passporting rights enabling banks to access the European Union in the aftermath of Brexit negotiations.
Theresa May’s government appears to be aiming for a “hard Brexit,” according to which Britain would obtain control over its borders but lose access to the single market. The EU has on more than one occasion warned Britain can’t abandon EU Freedom of Movement without giving up access to the 28-member trading bloc.
Officials have also stated that passporting rights enabling banks to conduct operations using their local licenses across the EU, are allied to this trading deal. The British government, however, has been reluctant so far to admit publically that the UK is on the brink of losing passporting rights.
The loss of passporting rights could have a devastating effect the City of London. JPMorgan and UBS have made a public announcement stating they might have to shift thousands of jobs out of Britain if passporting rights are lost and Goldman Sachs is reported to be considering moving up to 2,000 headcount.
Barclays CEO Jes Staley said 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.”
Mark Garnier, Parliamentary Under Secretary of State for International Trade, tried to diminish concerns by assuring that Britain would settle a “new model” of financial trade with the EU which would be a decent substitution for passporting rights. He said:
“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.”
There are two problems with this “new model”. The first one is that it is highly unlikely such a model will be adopted at all. Secondly, it would require much time, time banks will most likely not stick around for.
Donald Tusk, European Council President, is one of numerous EU officials to have stated they will take a tough stance in Brexit negotiations, meaning negotiating a new trade deal would be difficult.
Meanwhile, the head of the British Bankers’ Association warned the previous week that banks’ “hands are quivering on the relocate button” as “businesses can’t wait to the last minute.” While negotiations are underway, the majority of banks will probably quit.
The Prime Minster appears to be very well informed of this. A leaked audio recording of Theresa May delivering speech at Goldman Sachs in May — before the referendum and before she would become 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?”