Passporting for financial services

Obviously it would be nice but:

There is a consensus that the EU’s integrated financial market is one of its great success stories. It makes it easier and cheaper for French farmers, German manufacturers and Italian fashion designers to secure funding. It helps EU citizens get better returns for their savings. And it also creates jobs, not least in the UK, where financial services as a whole employs more than a million people, two-thirds of them outside London.

But it is now at risk. It is underpinned legally by the “passporting” system enshrined in EU legislation, which allows banks based in the UK to sell services to customers in Europe, and banks based in Europe to sell services to customers in the UK, and access the global financial centre that is London. It also allows banks based in one EU country to set up branches in any other EU country without going through local regulators.

Banking is probably more affected by Brexit than any other sector of the economy, both in the degree of impact and the scale of the implications. It is the UK’s biggest export industry by far and is more internationally mobile than most. But it also gets its rules and legal rights to serve its customers cross-border from the EU. For banks, Brexit does not simply mean additional tariffs being imposed on trade – as is likely to be the case with other sectors. It is about whether banks have the legal right to provide services.

The system is 14 years old so I am told. The City was the financial centre of Europe before that too. It isn’t therefore quite as much of a deal breaker as is being said.

Further, he’s talking about £20 billion of exports. OK, that’s real money. We’ve also got a £1.8 trillion economy. How much should we subjugate that to the EU in order to get those exports?

67 thoughts on “Passporting for financial services”

  1. London isn’t just a European financial centre. It, along with New York, is the WORLD’s financial centre. It holds the distinction of being considered one of the world’s two Global Cities (NYC is, again, the other one).

    London is the undisputed centre of the forex market, which averages $4trillion a DAY in trades. More money changes hands in London every day than the US Federal Government spends in a YEAR.

    And all this is going to go away because of Brexit? Give me a break.

  2. It was a good article. I thought. I am getting worried now that all the mercantilist bullshit will be sloshing around the news for years to come. We got a good deal they got a good deal,when every cent on tariffs and restriction on trade is a worse deal for everyone.

  3. It makes it easier and cheaper for French farmers, German manufacturers and Italian fashion designers to secure funding.

    Those French, Germans, and Italians had better start negotiating then.

  4. Bloke in North Dorset

    As long as our courts are seen as being amongst the fairest in the world and English remains the world’s 2nd language, contracts will continue to be written under English law. We may lose some business to EU cities for inter EU trade but it won’t be much.

  5. It is a good (though concerning) article – acknowledges that it’s not all one-sided but points out how EU politicians will fuck us all out of moronic spite.

    I don’t understand what Mandelson was doing on the panel. The man resigned twice in disgrace under Blair, then got given a plum job in Brussels where there’s always been less scrutiny. He got brought back as a safe pair of hands under Brown but it’s difficult to see what he’s actually achieved.

  6. So Much For Subtlety

    We should aim at being the world’s largest tax haven off shore of one of the stupidest economic systems in the world. It ought to be entirely possible for the City to grow ever larger after Brexit due to a lack of idiotic Frenchman screwing over the financial system. And from normal Frenchmen seeking to protect their wealth from the tax man.

  7. Canary Wharf is already chock-full of Frenchmen who have a clue and hence have no interest in applying their trade in France. The idea that financial institutions will just pack up and move to France is laughable: they’re not on London because they like the weather.

  8. Thanks for drawing attention to the youth of the passporting regime. It is noticeable that Remainers always try to leave the impression it has existed as long as our EU membership.

  9. The other problem here is that, many of those jobs have fuck all to do with international trade.

    Less about 50 people who look after their international section, the 18,000 employees of Nationwide aren’t going anywhere. The 14,000 people working at Direct Line aren’t going anywhere. My pension guy isn’t going anywhere. Most accountants aren’t either. Do credit control companies count? Again, not going anywhere.

    And the stuff that has moved isn’t going to Europe for the reason Tim Newman says – it’s a regulatory disaster and language problems abide. I know where the software work of banks went, and it’s not to Europe. It’s to Bangalore and Hanoi.

    This is generally a thing that people don’t grasp about what’s happening with the world. The growth in trade isn’t in selling olive oil, cars or steak. I’ve worked in a lot of companies doing trade that need software and few of them view the EU as a big deal to them. Either it’s non-existent or just another market. And that’s about costs. It’s really expensive to trade with somewhere like France where you need a load of language support. A French or Belgian company will probably outbid you, or you’ll think the investment not worth it.

  10. It is about whether banks have the legal right to provide services.

    Any attempt at curtailing UK banks’ € operations will by definition impair its convertibility which would be perverse, rather like a doctor applying more leeches to a dying patient.

    So perfectly possible and with a predictably unhappy outcome.

  11. The idea that Europe has an “integrated financial market” is a load of tosh. Leaving aside the wholesale markets (which really happen in London as part of wider international markets – Middle Eastern and Asian banks lending to European companies in syndicated facilities arranged in London etc), the idea that every European financial company is willing to do business with every European customer is a fairytale in the mind of some Eurocrat. 99% of banks will concentrate on the local markets that they know best.
    The reason the Norwich and Peterborough Building Society has that name is that it isn’t going to start lending to agribusinesses in Slovenia or Berlin internet start-ups.

  12. Presumably though the UK’s financial industry has grown over those 14 years; indeed grown quite considerably, judging by the amount of column inches of generates. Setting the clock back 14 years would therefore be a considerable reduction from its current size.

    Not saying that would happen; just that the youth of the passporting regime doesn’t tell us anything in itself.

  13. The French idea that they would attract banks by cutting the top rate of tax for senior bankers made me laugh. Apart from the likelihood of tumbrills and guillotines in the streets of Paris, who do they think they would attract? Wall St’s finest on foreign assignment to London? Dream on. The US tax system ensures that there is no point in taxing overseas US citizens at a low rate because they just end up paying more back home. If they were going t be swayed by low tax rates they would have been operating out of Switzerland or Monte Carlo a long time ago.

  14. The French left NATO in the 60’s, but still play a part in NATO today. So why can’t the UK play a role in EU markets without having to be in bed with the EU?

  15. So Much For Subtlety

    There are some 300,000 plus Frenchmen in London. Which is to say about 300,000 too many if they are outside POW camps. But that puts London as about the fourth or fifth biggest French city in the world.

    I have to say I am outcome independent about this. If they all f**k off back to Northern Algeria, well and good. If they don’t and the City thrives, we get lots of cash.

  16. My company does CE marking on personal protective equipment, not as fancy as you financial bods but I imagine the situation is similar. We’re opening an ‘office’ (desk) in Dublin and sending all of one person there to rubber stamp certificates in the EU. It’s nothing in the grand scheme of things. Would it be much different for finance companies in the case of even a ‘hard Brexit’?

  17. To those – thankfully a small minority on this site – who bleat about Brexit bringing us tariff and non-tariff barriers, : there is nobody in the UK proposing any tariff or any restriction on movement of goods or services at all.

    To any Irishman reading this blog: you need to wake up damned fucking quickly.

  18. So if a bank decides to move its operations to a country with rule of law rather than mob rule, with politicians welcoming them rather than always having a go about them, with even cities offering a good deal to relocate there….
    Why wouldn’t they move operations overseas?

    What is the advantage to staying in London? What would be the advantage of staying in London after 2019?

  19. There must be an opportunity here for some of our bigger banks to be persuaded to move their head offices to le Continong, and incorporate there, so that when the banks all go tits up again the cost of the bail out will fall on Paris or Frankfurt, rather than us. That would be a satisfying win-lose deal.

    Maybe the govt could experiment by ordering RBS to try it. I mean, the pro-EU SNP could hardly object, could it?

  20. Brexit. Because who needs a comparative advantage in financial services when you can get, I dunno, cheaper Caribbean bananas or something.

    It would be hilarious if it weren’t so tragic.

  21. So Much For Subtlety

    Eur In Trouble Now – “Because who needs a comparative advantage in financial services when you can get, I dunno, cheaper Caribbean bananas or something.”

    Whatever comparative advantage Britain has in financial services it had before the EU and it will continue to have afterwards. It may be that a Hard Brexit would cost the City something. However being free of French meddling will benefit them to some degree too. Which is greater we will have to see.

    In the meantime, yes, we will all benefit from freer trade with the rest of the world.

  22. “EU Calling, EU Calling

    Pathetic Britishers–soon your financial system will be in ruins. And we the Franco/German Master Merchant Bankers will rule.

    Pathetic Britishers where is your legacy of freedom now?
    It would be hilarious if it weren’t so tragic.”

  23. Martin: “Mob Rule”

    Why don’t you fuck off over there yourself.

    One more arrogant cunt will be right at home among the gang.

  24. There is some fellow in the Observer, that’s been picked up by the BBC, talking about how banks are getting ready to move to “Paris and Frankfurt”.

    Boy, I hope this is true. I want to be there when the bankers first arrive to set up shop in La Defense and find out they need to provide a canteen for the workforce, if they want to merge one department of 20 with another of 10 doing much the same thing then they need to enter into a months-long consultation with the CGT union, which is full of Communists, and they will need to set up CE costing 3% of payroll to ensure their employees get discounted cinema tickets, etc.

    These people have no idea what working in France is like.

  25. Tim N: These people have no idea what working in France is like.

    I had a big surprise when I got my first French pay “slip” having been used to a monthly DL envelope in the UK with a similarly sized bit of bumf within, whereon all the information fitted easily.

    The French generous print-out was largely incomprehensible to me so I picked up the phone to the FD and asked him if he could spare me 5 minutes at the end of his day to talk me through it.

    There was a silence and then he said wistfully “Ah, Monsieur Bison, sadly five minutes will not suffice”. Nothing is simple in France and the only certainty is that every rule can be bent.

  26. Some people really need some perspective. Two key events, WWI and WWII, were enough to overcome the dominance of British finance. While there may be negative fallout from Brexit I seriously doubt that it will be the cause of WWIII. It will take something far more serious for London to see the projected financial fallout. Too much socialism will do it but I see Brexit as a move away from continental socialism.

    Note: I haven’t changed my opinion that some socialism is a necessary evil. The masses must be placated or the guillotines will come out.

  27. LY–Well you are on the stairway up. You can see the market’s light but still smell the sulphurous stink of socialism. You have been down so long you think life free from the stench is impossible. Not so.

    But you are on your way up at least.

    PS–I have seen at least one source –reliability unknown–that says Killery has a stinking sulphurous whiff about her. She certainly does metaphorically but the report said physically too. Seems unlikely given the army of life-preservers she has around her. They can’t all be anosmic.

    However in my life I have met several women who, although immaculately turned out to the visual sense, had something very badly wrong on the BO front. Perhaps anosmia is more common than I suppose.

  28. SMFS

    “Which is greater we will have to see.”

    The fact the country’s 17% poorer on a trade weighted basis already suggests which way the smart money’s going.

    Tim N

    Yes, France is a shockingly difficult place to do business. The banks aren’t going to go there, apart from the French banks (naturally) and HSBC (who already have an operation there for some reason). Dublin and Frankfurt are more likely.

  29. @AndrewM
    “Setting the clock back 14 years would therefore be a considerable reduction from its current size.”

    The growth in UK financial services has had very little to do with passporting. Prior to passporting UK firms that wanted to do business on the continent opened an office and where appropriate got regulated. Even with passporting most of them would still open a foreign office because you can’t run all of the business out of London.

  30. “EU Calling, EU Calling,

    So pathetic Banana-buying Britishers even as we speak you have betrayed yourself and the Financial heart of you Capital City is in flames.

    I can see the glow as I sit here in Frankfurt –or is it Dublin?. And my heart is heavy.

    The smart money is going

    That a once great people should bring themselves so low because of bourgeois sentimental attachment to long-dead childishness such as personal freedom and foolish little people having a choice about their lives. Oh you fools, you fools ( voice rises to hysteria) –you could have been part of a great nation, a great Islamic nation prosperous beyond human imagination, And you threw it all away for old fashioned codswallop like personal freedom and choosing your own path in life.”
    …(subsides into sobbing) followed with funereal silence broken only by the distant subdued dirge-playing of an obe.

  31. Ecks,

    I see the pitfalls of pure capitalism and acknowledge that it will lead to populist movements. In order to prevent the reemergence of communism I acknowledge the need for some socialist programs as long as they create minimal market distortions and increase overall economic growth. But then I attempt to subtract spillover costs from the profits of private industry when I determine whether a program is worth using. Spillover benefits also come in play but these tend to come from socialist policies in my experience.

    Government is a necessary evil. Wealth redistribution is a necessary evil, unless the job creators voluntarily redistribute their wealth but that doesn’t tend to happen on the scale needed. Ideally we wouldn’t need either but as long as there are humans they can’t just go away.

  32. Eur,

    Markets tend to fail during times of unpredictability. The current drop in values reflects the uncertainty of what will come. Once there is any type of plan in place I expect the current loses to be erased.

    Whether or not there will be long term consequences depends on the trade treaties put in place once the Brexit process is complete. Anything we see today tells us nothing about the future.

  33. Urine Trouble:

    “The fact the country’s 17% poorer on a trade weighted basis already suggests which way the smart money’s going.”

    Currency traders are emotional and behave as a herd. Currently, there are 90k+ positions shorting the £. The tide will turn, when uncertainty reduces…

    The £’s 17% devaluation against the € is an advantage in that exporters don’t need to worry about tariffs in the short term.

    If the £ had appreciated after the Referendum result, and exporters were squealing, Europhiles like you would be complaining furiously.

    You want in; but you lost. Whatever the currency consequences after the Leave victory, you would be using them to further your bankrupt EU ideology.

    Do try harder.

  34. “Matinn: “Mr Ecks – are you suggesting we do not have mob rule here?”

    Anyone saying that the British people voting in a referendum that all sides were content about ( when the Remain gang thought it was in the bag for their treason) equals mob rule because Remain lost is a cunt.

  35. Tim N,

    My father-in-law worked in industrial purposes and because the perfume industry grew out of Provence, a lot of it is based there. He was telling me that every company avoids creating jobs there, though, because of the costs of redundancy.

    It’s also why, I suspect, that France has all these tiny independent shops everywhere rather than chains. When you hit 20 staff and all the rules kick in, it’s a big cost. So, no-one expands past that point.

    The tragedy is that they’re going to back Le Pen who is going to be even worse, when they really need a Thatcher.

  36. LY–Sunday Dinner beckons so I will just say that if you take a barrel of clean, potable water and drop even a small spoonful of shite in there who will be keen to drink?

    Good and evil do not mix. Nor freedom and tyranny. Nor the market and socialist evil.

  37. “The masses must be placated or the guillotines will come out.”

    Just hang Blair: that’ll give lots of people a warm glow for decades. And the whole circus of arrest, charge, trial, conviction, and sentencing will keep the people thoroughly entertained for many a month.

  38. I live the way these little EU lovers pick up random stats and hold them up to shout “look, look, this proves us completely right and you wrong”. I also love the way they appear to think we are a few made cranks who have visited mayhem on the British people against its wishes. So here it is Eur in Trouble Now and Martin: We are the majority. We speak for Britain and it’s people; you don’t. Your time has been and gone. The future is ours. Our country is ours again. If you believe it is all so terrible just leave. But you won’t will you. Because in your hearts you know your long-held beliefs are bollocks.

  39. Ecks,

    First, enjoy your diner.

    Second, the world isn’t black and white no matter how much you want it to be. Both capitalism and communism have major flaws once you add people to the mix. Until we find a better way the best course is to use one to offset the flaws of the other. We are still stuck with people who want to enhance the flaws unless we are willing to actually set up the gallows. The problem with the gallows is who will end up being judge.

  40. Mr Ecks
    ““Matinn: “Mr Ecks – are you suggesting we do not have mob rule here?”
    Anyone saying that the British people voting in a referendum that all sides were content about ( when the Remain gang thought it was in the bag for their treason) equals mob rule because Remain lost is a cunt.

    And who mentioned the referendum regarding mob rule? I certainly did not.
    Like it or not we have had a referendum and the voters made their decision known.

    You may have missed the issue over the years of MPs, media and deranged people demanding tax payments based on fantasy rather than law, of sit ins at banks, of boycotting companies over being based overseas. Of demanding someone pay back what they have not had.
    All mentioned on this blog over the years.

    That sort of mob rule.

    Those of us who accept the current system of voting will tend to accept a referendum as lawful. May not like the result but can hardly disagree with the result.
    With the exception of the Sage of Ely perhaps.

  41. Ironman – the voters have indeed spoken. Have never said they had not.
    I disagree with how they voted, I cannot disagree with the result. Like millions of others I accept the result as given.

    Though quite how that result will play out….
    Seems to be a range from complete exit with nothing to do with the EU except new trade deals over time to being pretty much as we were in many aspects. Both extremes of possibility and of course there are tons of variances between them.
    Which the public and maybe even parliament won’t get to vote on.

  42. LY–“We are still stuck with people who want to enhance the flaws unless we are willing to actually set up the gallows. The problem with the gallows is who will end up being judge.”

    You speak of the need for gallows not I. It is enough socialism be rousted and defeated along with its various allies–the RoP etc–no need to kill them. Unless they leave us no other choice. Much better punishment that they stew in the sight of their vile dreams ground into the dirt.

    However , despite your mastery of trite clichés an important point emerges.

    Amidst the drive to destroy the evil and wicked there is always the danger of becoming the same type of man that you are fighting against. The temptation to want all the forces of the left destroyed with the same kind of malice that they have dispensed to so many others is always there and must always be fought against.

  43. For smug face Eur In Trouble:
    This is a pedantic point but the claim that ‘the country’s 17% poorer on a trade weighted basis’ is false. The currency is 17% weaker.
    About 3/4 of what the UK does is with itself, about 1/4 with others, so the country is about 4.25% poorer.
    Still, keep fighting to retain those £4bn of agricultural subsidies to owners of foreign farmland, why don’t you.

  44. Andrew – for those of us importing goods to sell (and the buyers buying it from us or other sellers) the cost of the goods has gone up.
    I pay usually pounds or euros for my stock, occasionally dollars. Many of my suppliers pay in euros or dollars.
    Knock on effects, when stock costs more to buy the extra cost has to be covered somewhere. Usually buyers paying extra.

    The knock on effect for many things will be a lot more than 4.25% extra price.

  45. Seem to recall that Dublin offered some nice incentives and tax rates to entice financial companies about 20years ago or so, don’t see that this resulted in them becoming a financial centre then either

  46. So Much For Subtlety

    BniC – “Seem to recall that Dublin offered some nice incentives and tax rates to entice financial companies about 20years ago or so, don’t see that this resulted in them becoming a financial centre then either”

    I like Ireland. As in the Republic of. Beautiful country. Lovely – and reasonably priced – housing. Good beer. Nice people by and large.

    But the country is still being run by this God-damn awful corporatist alliance between the government, Big Business and the Trade Unions. They stitch deals up behind closed doors and you’re screwed unless you are someone’s friend. I expect they all have nice pension schemes worked out too. One way or another.

    The idea that dropping a foreign, especially British, bank into that toxic stew wouldn’t result in a feeding frenzy of corrupt thugs that would put the most bloodthirsty pirana to shame while hiding behind expressions of Irish grievance and anti-Imperialism is insane.

    By all means, try it. See where it gets them.

  47. Ecks,

    The thing is I don’t want to destroy socialism. Bad things happen to good people all the time and a safety net can reduce the overall costs to society. The problem is it is taken too far without thought of the consequences. I have no idea how to fix this but the current system can not continue.

  48. But the country is still being run by this God-damn awful corporatist alliance between the government, Big Business and the Trade Unions.

    You’ve just described Australia: and for good reasons. An Irish pal of mine who frequents this blog now lives in Australia, and he says to understand Australian politics you need first to understand that they are Irish politics, not English.

  49. Martin

    Get it into your smug empty head; the British public DID get to vote, has voted, did know what it was voting for and has made itself clear.

  50. I don’t think (based on his usual comments) Martin is either smug or empty headed. However, he is going to have to find another line of business, or cut costs, or make less money or something. We can’t order the world to suit one little sector (people who import stuff from the US to sell direct in the UK).

    Not to mention, lots of people’s businesses have suffered under the EU straitjacket. Try telling fifty per cent of young Spaniards that it’s a boon. Fifty per cent!!

  51. Ironman, when have I said I disagree with the vote results?
    I have not.
    I can disagree with how others voted (as can many millions of others) but I have never said I do not accept the vote as it is.

    The change that results from that referendum, now that’s another matter.

    Interested, no problem like every other seller I simply passed the increased costs onto buyers. Same as all the other business cost increases over the years.
    Many people import in dollars. I get shipping prices every week from my shipping agent (various deals at times) – prices are all in dollars. Shipping from usually China or other Far East countries.

  52. Pingback: Hey, there! Anthony boy! | White Sun of the Desert

  53. I reiterate that I thought it was a reasonably balanced article (which the Observer then basically misquoted). The fact that he’s worked for the BBC doesn’t make him wrong or a propagandist.

  54. @ Martin
    You may import 100% of the goods that you consume but the country as a whole does not. Therefore to say that we are 17% poorer is as utter bollocks as Harold Wilson’s “pound in your pocket” speech, just from the other side of reality.

  55. Andrew C

    I said on a trade weighted basis, not purchasing power parity. Try and turn sterling into dollars or euro or swissies and you’ll find I’m exactly right. If you’re going to be pendantic, get it together.

    john77

    Ditto, except to be fair you didn’t claim pendantry.

    Theo

    I can only assume you’re trying to support me. “Sterling is sinking because lots of people are shorting it!” Now why exactly do you think that is??

    LY

    I absolutely agree there’s a high price to uncertainty. However I can’t agree that the currency will bounce back when the uncertainty is removed. It depends on which end state is deemed more likely.

  56. “EU Calling, EU Calling

    Terrible news again for you pathetic Britishers

    Your so-called mighty battleship “Sterling” has been torpaedo-ed(sic) by one of our new “Lying Prick” class EU-Boats.

    It is on fire and sinking off the Bay of Purchaseparity.

    Do you suffer the pangs of regret, foolish Britishers, that you stood up against what is predestined to be the future. Soon the Vicious Circle of Stars, our glorious flag, will fly again over your towns and cities . A not-so-secret army of treasonous spies and saboteurs is.even now…..

    What do you mean I have to stop? No power? How can there be no power–this is Europe?..,. Wind–WTF has the wind got to do with…(cut off followed by silence..)

  57. @ Eur in Trouble Now
    Your inability to tell the difference between wealth of a country and the exchange rate of its currency suggests that your understanding of either Economics or the English language is somewhat limited. I have no liabilities denominated in foreign currencies; my house, my clothes, my other possessions are unaffected – so how am I suddenly 17% poorer? The UK imports almost one-third of its oil consumption so petrol prices should go up 2p a litre (anything above that is shared between HMC and the oil companies): that’s 1.7% on less than 5% of my spending. If I should decide to take a holiday abroad that will cost me more, but we had already planned a holiday in England before the referendum took place. The large majority of my food is produced locally or elsewhere in England and the cost of the imports in neligible relative to my income. So you are categorically wrong on “poorer” and out by a factor of twenty if you meant to say “lower spending power”.

  58. I really couldn’t be bothered to deal with this again. Except two highlights:

    “my clothes, my other possessions are unaffected”

    ??? Is there some hitherto unknown economic theory that states devaluation releases moths in your wardrobe?

    “The UK imports almost one-third of its oil consumption so petrol prices should go up 2p a litre”

    Jesus wept. You are aware (i) Brent spot is a benchmark oil price (ii) oil is traded in dollars (iii) price is set by the cost of the marginal barrel (iv) substitution effects apply to oil and refined petroleum products?

    Or even just be a driver and notice that post-tax forecourt prices in Britain appear to be correlated with global oil prices?

    Our gracious host could probably get two or three articles out of the economic fallacies in your post at a moderate stretch. Quite why you think your idiosyncratic personal consumption choices are a good proxy for the nation as a whole, one that runs substantial trade & current account deficits, I can’t imagine.

  59. @ Eur in Trouble now
    Are you unable to read? Or do you choose not to do so?
    “(anything above that is shared between HMC and the oil companies)”
    Of course I know the price is quoted in dollars – but I also know that most of the price at the pump is tax, the largest minority is the benchmark oil price (and when that goes up in £ terms HMRC claws back.30% of that increase from the oil companies on the two-thirds that is not imported) and the rest is operating costs and profit. It appears that you do not.
    You are now saying that the economic theory you are proclaiming – that my possessions have declined in value by 17% – is hitherto unknown. It is still unknown to everyone except yourself: you, not I, expect moths to eat my clothes and rust to corrode my car overnight when the £:$ exchange rate falls.

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