UK banks will be locked out of EU claims key Merkel ally
The European Union won't bend its rules to preserve access for the City of London once Britain leaves the bloc, according to German politician Michael Fuchs, an ally of Chancellor Angela Merkel.
The legal and regulatory framework for so-called passporting is geared to banks based in an EU country, and negotiating any new arrangement promises to be "very difficult", Mr Fuchs said in a Bloomberg interview yesterday.
Passporting rules, which allow a bank incorporated in any EU member state to sell its products and services throughout the $19 trillion integrated economy, are "not negotiable", he said.
That's a rebuff to lobbies such as the British Bankers' Association, which says its goal remains to keep "the current full level of access to the EU market".
While UK Prime Minister Theresa May has said she will fight for the City to retain its passporting rights, bankers and lawyers say she faces an uphill battle trying to win concessions from EU partners.
"If you're member of a club you have certain benefits, but if you're out, you will not have the benefits any more," said Mr Fuchs, a deputy leader of Ms Merkel's grouping in the German parliament. "It's not going to be an easy game."
Avoiding isolation for U.K.-based banks is one of May's biggest challenges after Britons voted on June 23 to end more than four decades of EU membership.
With future relations between the EU and the UK in limbo for now, the other member countries are seeking to chart the way forward.
Mr Fuchs said talks on access for UK banks will "require a lot of effort".
As an example of the difficulties, he cited a legal bar to letting London-based banks manage initial public offerings in the EU after Brexit.
While the passporting agreement also includes non-EU countries Iceland, Liechtenstein and Norway, Mr Fuchs said banks operating in the EU must be subject to EU supervision and can't be run out of London when the UK is no longer a member.
Meanwhile, more than a quarter of European companies plan to reduce the amount of business they do with UK banks after Britain exits the European Union, according to a survey by Greenwich Associates. Around 28pc of companies on the continent are planning to move away from British banks, with 20pc shifting business to global lenders, the financial services consulting firm said yesterday citing responses from 63 European and UK corporations.
About 8pc of UK companies will increase the amount of commerce they conduct with domestic lenders, according to the survey.
More than half of the European companies think banks in the UK will lose their passporting rights, compared with 37pc of British corporations, Greenwich said, citing 128 responses.
About 45pc of the companies on the continent expected Brexit to have a negative or very negative long-term economic impact, while almost 30pc of British firms felt similarly. (Bloomberg)