Banking on Brexit

 

 

Like, loath or simply view as a necessary evil, the banking sector in the UK is dominating political thinking currently and will form a big part of Brexit negotiations with the EU.

 

I appreciate that I have been far from charitable or diplomatic since 2008 with my opinion or comments on the banking sector. However, putting that to one side (just for once), it is important that we discount my opinion and understand the political position with Brexit and the banking sector.

 

The Brexit Issue……

One of the ‘perks’ of Europe's Single Market is ‘passporting’. Passporting allows banks and insurance companies to sell their services anywhere in the single market (i.e. across all EU member states) without having to establish a base in every country in Europe.

 

But single market membership comes with conditions: freedom of movement of goods, services, capital and (crucially) people. Or to put that another way……quit the single market and the UK will lose passporting rights.

 

The UK Economy Issue……

In short, large banks are getting ready to relocate out of the UK (by as early as next year) over fears of losing passporting rights. Summed up perfectly by Anthony Browne (the head of the British Bankers Association)…..“public and political debate at the moment is taking banking in the wrong direction."

 

Essentially, banks with European headquarters in the UK that enjoy freedom of trade with all EU states would need to set up a secondary location in the EU to trade with EU countries. Is it any wonder that the EU will be very reluctant to accommodate the UK wanting to retain passporting when Paris, Frankfurt, Rome, Madrid, et al are all rubbing their hands at the prospect of some of London’s financial market moving to the EU.   

 

The Political Issue……

Theresa May has already said she intends to restrict the free movement of people from the EU after Brexit, while EU leaders have meanwhile said the four freedoms are indivisible and non-negotiable. A Brexit with selective retaining / removing EU rules is where the negotiations will be key.

 

Given the financial importance of the banking sector to the UK economy, Theresa May is really caught in a tough place. If Brexit really does mean Brexit, then the consequences could be huge without key negotiations.

 

Banking is the UK's biggest export industry by far……a key thing to consider when we view the political sparing over the next 6 months.

 

Interesting times.