January 19, 2022

Volume XII, Number 19


January 18, 2022

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Part 8: Brexit’s Potential Impact on Corporate Passporting and the Banking Industry [VIDEO]

Our panel of leading analysts tackles the complex issue of corporate passporting and how Brexit might complicate the issue even more in this latest addition to our multi-part video series discussing the U.K.’s decision to leave the EU and the potential challenges and opportunities Brexit poses for businesses on either side of the Atlantic. 

Jeff: Okay.  So, let’s jump into an industry that we all care a lot of about because it’s important to Charlotte.  I mean Charlotte is the second largest financial services center in the United States.  The first panel talked some about passporting and what it meant.  And understanding how important for the UK to win passporting in the negotiations.   Jonathan, can you talk some, for U.S. companies and especially our financial services institutions that have come to London as their gateway to Europe.  If passporting isn’t universally continued, what impact is that going to have the financial institutions and other U.S. companies that are headquartered in the UK, and what’s the impact of that going to be?

Jonathan: Okay.  I mean passporting you know is being no doubt about, Jeff, passporting is going to be a very, very key issue here.  It is critically important that in the negotiations, the UK government gets this passporting issue sorted out and sorted out quite quickly actually.  I think Morgan Stanley have already indicated that they’ll be relocating I think 2,000 employees or something like that too.  I can’t remember whether it was Frankfort or Paris.  But certainly getting passporting sorting out.  In other words, getting this license to operate and sell services across Europe sorted out very, very early on.  That is going to be critical.  What does this mean?  To put this into context, the UK handles almost 40% of global currently trades.  40%.  And for the UK re London.  So, this is going on here in London.  And that is how important to global currency trades London is.  On any one day, London trades more dollars than New York.  Now, that is how significant and issue this is.  So it is significant for the UK.  It is significant for Europe, and it is significant for the states as well.  So, if we don’t get passporting sorted out, which as I say, I think it’s inconceivable that we won’t, and I think it is one of the major issues that we have to get sorted out.  But, if we don’t what does that mean?  There has been some speculation about it, inevitably because people want to assume that they say is going to be sorted out.  It’s the sort of thing that isn’t really getting much air time here in the UK.  I think what you’ve got to remember is that London in particular within the UK is set up for financial services.  There is no other neat solution within Europe which is going to deliver this sort of results that U.S. financial institutions want.  This is not just about being next door to your competitors.  It’s about being alongside your client base.  And for those of you visit London regularly, and Jeff, you’re obviously a regular visitor here.  You know, because you see it, and you can see the way the infrastructure is set up.  The buildings that we have here, the access to resources, the access to people to head count.  Other countries don’t have that, and they’re going to have to sort that out fairly quickly if they are going to genuinely compete.  If therefore, the U.K. doesn’t get passporting sorted out, I think what will have to happen is that some sort of, it’s going to have to be more than a brass plate, but my guess is, it will be a relatively nominal headquartered representation in probably in either Paris or Frankfurt.  It’s not going to happen in Dublin, I don’t think, but just I would like to see that, because Dublin, Ireland just do not have the resource the access to the human capital that they need.  I don’t however see large financial institutions whether they be U.S. financial institutions or from elsewhere in the world decamping on mass to say Paris or Frankfurt.  I think some of people will have to because of those licensing issues but the large back office operations are going to remain here in London.

Jeff: Francesco, there are over 6,000 banks in the United States, but when we look at the United Kingdom, you market has always been dominated by a handful of very large banks and other financial institutions.  Does Brexit create an opportunity for the British government to create a regulatory regime that’s more favorable to smaller banks and financial institutions.

Francesco: Well, there’s a potential that that could happen, yes.  There is certainly has been a strong voice from the challenger banks both to the Treasury Select Committee within your Cape Parliament and also in response to a recent accomplished and markets authority investigation to the operation of retail banking and banking for _________ in the UK does encourage just that.  At the moment, the strong view for a lot of the challenger banks is that there are some various entry to make it very difficult for them to sort of seek to grow and expand their businesses.  Some of them having to do with capital requirements, taxation and other sorts of issues of that sort of thing.  Now the thing is I think a lot of the financial rules have been put in place the European Union, and actually, were probably driven by the UK.   So, a lot of its been informed by that, certainly with regards to a lot of the prudential regulations that was put in place after 2008, a lot of that was driven from the UK.  A lot of the models and just sort of regulatory framework that’s in place for financial services has a UK sort of color to it if you like.  So, yes, there is every opportunity for the UK to then to get strike its own kind of course, but part of the issue with regards to then wanting to have acts to greater financial services across the European Union.  I mean you talk about this issue of passporting rights.  Um, maybe that in order to hold on certain sorts of passporting rights, it may be that UK will have to sort of follow a very similar regime as what is in place in the European Union.  At the moment, you do have these sort of third country type of arrangements where provided you have a regulatory system and approach that’s very similar to what is recognized in the U, then you’re allowed to business in the U.  So, it may be a few, okay, we’ll have to sort of pick and choose the types of regulatory framework or changes it wants to put in place that it feels can benefit consumers and allow challenger banks to be more competitive within the UK market, but it will be very much sort of part of an iterative I suppose in sort of seeing what if any kind of passporting rights the UK has and what ultimately that looks like in the future.

View Part 1 - Brexit: Overview and Reactions

View Part 2 - Brexit: Currency Issues and Inflation

View Part 3 - Brexit: Outlook for the EU and Impact on the U.S.

View Part 4 - Brexit: U.S. Opportunity in the U.K.

View Part 5 - Brexit: The Impact on Mergers & Acquisitions 

View Part 6 - Brexit: What the U.K.’s Exit Might Look Like

View Part 7 - Brexit’s Potential Impact on Corporate Passporting and the Banking Industry

Copyright © 2022 Womble Bond Dickinson (US) LLP All Rights Reserved.National Law Review, Volume VI, Number 308

About this Author

Theodore Claypoole, Intellectual Property Attorney, Womble Carlyle, private sector lawyer, data breach legal counsel, software development law
Senior Partner

As a Partner of the Firm’s Intellectual Property Practice Group, Ted leads the firm’s IP Transaction Team, as well as data breach incident response teams in the public and private sectors. Ted addressed information security risk management, and cross-border data transfer issue, including those involving the European Union and the Data Protection Safe Harbor. He also negotiates and prepares business process outsourcing, distribution, branding, software development, hosted application and electronic commerce agreements for all types of companies.


Jeffrey S. Hay, Corporate lawyer, Womble Carlyle, Law Firm

Jeffrey Hay serves as a member of the Firm’s Management Committee, is the Office Managing Partner of the Charlotte Office and is the Leader of the Firm’s Global Business Group.  He also serves on the leadership group for the Bond Dickinson-Womble Alliance. 

Jeff Hay has represented corporate clients, private equity groups and venture capital funds for more than 30 years. He has extensive experience in representing middle market, emerging growth and technology companies in private equity and venture capital financings, mergers and acquisitions,...