Brexit: the implications for banking

The UK: a gateway to Europe

For UK banks operating internationally, or overseas banks operating through UK subsidiaries, probably the single most important aspect of the UK’s membership of the EU is access to the “single passport”. This is the name given to the system of mutual regulatory recognition which enables banks providing financial services in one Member State to operate in other Member States without having to seek authorisation in each and every Member State in which they wish to operate. Many non-EU banks take advantage of this system and use the UK as their gateway to Europe, thus enabling them to benefit from the four freedoms of movement which membership of the EU confers.

If the UK were to leave the EU, UK based banks (including non-EU banks operating through UK subsidiaries) risk losing that passport. This would mean that they need to establish operations in an EU Member State in order to maintain access to markets in other EU Member States. Alternatively they would have to revert to individual applications for authorisations in individual countries (with the time, relocation and cost consequences which this would entail).

This could have potentially very significant consequences for the financial services industry in the UK. As the Association of Foreign Banks put it: “If Britain withdraws from Europe, then foreign banks may reassess their reasons for maintaining their business in Britain and may decide to continue their business elsewhere”. A recent survey conducted for City UK suggested that 37% of financial services companies say that they are very likely or fairly likely to relocate staff if the UK left the EU.