On September 20, the UK House of Commons Treasury Committee published a letter (Letter) from Andrew Bailey, Chief Executive of the UK Financial Conduct Authority (FCA), dated August 17. The Letter contains figures on UK firms currently holding single-market “passports” under certain EU directives to provide services or establish branches elsewhere in the European Union.
Passporting is a significant right for firms in the European Union, as it allows EU-authorized (i.e., licensed) financial services firms (including EU banks, insurance companies, fund managers, investment advisers, proprietary trading firms and market makers, among others) to conduct cross-border business in other EU Member States with few formalities, including without having to become authorized in each other relevant EU Member State where they wish to conduct those activities. Significantly, particularly for EU banks, it also allows EU-authorized firms to establish branches in other EU Member States. However, depending on how the United Kingdom’s negotiations with the remainder of EU Member States progresses, a key consequence of its vote to leave the EU (or Brexit) could be that UK-based firms currently relying on single-market passports may lose the benefit of their passports once the UK ceases to be an EU Member State. This issue is currently a fundamental aspect of the UK’s exit negotiation (together with the contested immigration issue/ free movement of workers concept).
The figures set out in the Letter are in relation to “outbound” passports (issued by the FCA or the UK Prudential Regulation Authority and held by UK-authorized firms) and “inbound” passports (issued by EU regulators and held by EU-authorized firms), granted under nine EU directives (together the Single Market Directives, which includes the EU Alternative Investment Fund Managers Directive (AIFMD), Insurance Mediation Directive, Markets in Financial Instruments Directive, Mortgage Credit Directive, Payment Services Directive, Undertakings for Collective Investment in Transferable Securities (UCITS) Directive and previous UCITS Management Directive, Electronic Money Directive, Capital Requirements Directive and Solvency II Directive).
The Letter shows that under the Single Market Directives there are:
- 5,476 UK-authorized firms that hold one or more outbound passports to do business in another EU or European Economic Area (EEA) Member State;
- 8,008 firms authorized in other EU or EEA Member States that hold inbound passports to do business in the United Kingdom; and
- 336,421 passports held in total by UK firms for multiple business activities in EU Member States.