Massive Disruption Awaits UK-Registered Companies Post-Brexit
EU Assets Are Made Up of 40% UK Accounts
A potential storm in a teacup is bring for the City of London. As Europe’s financial epicentre, London is home to thousands of UK-registered companies that conduct business in the European Union. They do this by way of ‘passports’, but these passporting rights could be lost in the post-Brexit arena. It is estimated that some 5,500 companies in the United Kingdom are heavily reliant on passports to conduct business activities with the EU. Overall, some 8,000+ financial companies based in the European economic area or the European Union also utilise single-market passports to conduct business activities with the United Kingdom.
‘A passport is a mechanism through which firms may exercise their right to provide services and the right to establishment,’
Financial Conduct Authority (FCA)
The financial industry is increasingly concerned about the implications of a UK exit from the EU. For starters, the passporting privileges afforded to UK companies and financial services corporations that are licensed in the European Union may be at risk. Many more companies are dependent on passporting services to conduct business operations with United Kingdom than the UK with the EU. This paints an altogether different picture for European Union regulators who are all too eager to expedite a Brexit. Since 60% of EU capital market business activity is based in UK accounts and 40% of EU assets under management are based in UK accounts, Europeans need to think carefully about the wider implications of a Brexit.
Costs Will Increase and Customer Choice Will Be Reduced
Regulatory barriers to business activity will invariably increase costs. This will have the impact of reducing choices available to customers. For example, the European Union has received approximately £1.1 trillion in the loans from UK banks. The vast majority of major Swiss banks, Japanese banks and American banks direct their passporting activity from the City of London. If passporting is abolished, or severely clamped, many countries will start moving their businesses out of the United Kingdom. The UK Treasury meanwhile is hard at work trying to assess the potential fallout from a Brexit. According to the FCA, some 336,421 companies in the United Kingdom have passports. The number of European countries holding passports to the United Kingdom is 23,532.
European Union Insurance Mediation Directive Concerns
Among the many activities covered by these passports are insurance payments, corporate lending, investment banking and asset management. Retail banking is less impacted by passporting. Nonetheless, policymakers are intent on establishing robust negotiations to ensure that the City of London remains the #1 financial epicentre. Some 5,727 European companies and 2,758 UK companies are privy to the insurance mediation directive. This is the one that is most at risk with a Brexit. Anxiety levels among market participants are running high, as evidenced by spread betting volatility on post-Brexit complications.
Banking and financial institutions in the United Kingdom and the European Union remain uncertain about which international operations would be impacted by a Brexit. Already, banks have bandied about a figure of £9 billion (capital market revenue and investment banking revenue that could be disrupted) which amounts to 20% of overall activity. The issue of a passport is especially important between UK and EU businesses in the sense that it makes it easy to trade without having to request permission from individual countries.
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.