Britain May Lose Passporting Rights

Goldman Sachs expects Britain to lose financial passporting rights after Brexit. The investment bank made the call in its latest “Top of Mind” note sent to clients on Monday, saying: “Ultimately, we expect the negotiations to result in a UK-EU FTA (free trade agreement) that applies to goods but not services, and a loss of the UK’s rights to financial passporting.”

If Britain does lose passporting rights it would be a huge blow to the financial services industry. The EU’s passporting rules allow businesses to sell services across the union from anywhere within it and only require companies to be regulated in one country, rather than everywhere they operate, Business Insider reported.

JPMorgan and UBS have both publicly warned they will have to move jobs elsewhere in Europe if passporting rights are lost. Goldman Sachs itself is also said to be planning behind closed doors to move 2,000 jobs to the continent if the rights are lost.

Over 5,500 companies with a combined turnover of £9 billion ($11.11 billion) rely on passporting in the UK, according to the Financial Conduct Authority. However, a House of Lords report in to the potential impact of Brexit on financial services, released last week, pointed out that the interconnectedness of financial services in Britain meant that many firms relied on passporting without knowing it.

HSBC chairman Douglas Flint told the committee: “Everyone is affected by passporting rights to a greater or lesser degree.” Market insight company Mlex estimates that 13,500 companies in Britain depend on the rights.

The UK appears likely to lose passporting rights because the government has made a point of prioritizing controlling immigration as part of Brexit negotiations. European officials have repeatedly said that Britain cannot have access to the single market, through passporting or customs unions, unless it accepts the EU’s “four freedoms”—freedom of movement for capital, goods, services and people across the 27-nation bloc.

Meanwhile, several UK-based financial services groups have begun application processes with Irish regulatory authorities in expectation of losing EU passporting rights after Brexit, and the Irish central bank is expecting to see more, according to its deputy governor.

Cyril Roux said recently: There has been a material increase in the number of authorization queries from UK-authorized entities. Many of these engagements have been preliminary in nature. But several have moved into the pre-application or application phase, and this is likely to continue in the coming months as UK firms prepare for the possibility of a loss of passporting rights into the EU.