Clock ticking on passporting rights

It is vital to discuss passporting rights or transitional arrangements ‘as soon as possible’, a leading financial institutions lawyer warned this week as the Brexit negotiations got underway.

Rachel Kent, global head of financial institutions practice, Hogan Lovells, said the key concern for financial institutions is passporting, which allows firms authorised in the UK to operate in the European Economic Area, and vice versa. Passporting rights end once the UK leaves the EU. Therefore, financial institutions would need to have relocated parts of their business to the EU, with appropriate licensing, in order to continue trading.

Financial institutions are currently in the advanced stages of preparing their contingency plans, she said. The Bank of England has given firms until 14 July to submit these to the regulator, the Prudential Regulation Authority.

Kent warned that, given the level of preparation and expense required to move operations overseas, time may be running out. She said firms are reluctant to relocate, and equally unlikely to move back once they have moved.

‘It is critical for the industry that either a mutual access deal is agreed or transitional arrangements maintaining the status quo are put in place to take the pressure off for a further two or three years,’ she said.

‘We wait with bated breath for when this will make it on to the agenda. It needs to be done as soon as possible.

‘We are hoping for a bespoke mutual access deal, probably in the form of a free trade agreement, whereby all or some of the current passporting rights can be created. That would cause minimal disruption, and firms wouldn’t need to relocate.’

Meanwhile, Guy Lougher, head of Brexit advisory at Pinsent Masons, has warned the chances of agreeing a transitional arrangement on trade, let alone finalising and adopting a full new trade deal, ‘look slim’ as to do so would require the unanimous approval of all 27 EU countries.

He said companies are calculating the last date by when they must have taken any decision to move or adapt their business, and ‘realising they need to take a decision soon’.