Gentle Brexit, a very British Exit: EEA Membership as the Most Favourable Model to Secure Financial Services Passports

Abstract

Predicting the impact of the anticipated UK exit from the EU on passporting is rather difficult as the nature of the future EU-UK trade relationship is still unknown as of November 2016. At one end of the continuum, if the UK were to leave the EU but remain in the EEA, most passporting rights would remain available to UK firms trading in the EEA (and vice versa). At the other end of the spectrum, if no specific EU-UK trading arrangements were agreed for financial services, whether under EFTA or a bespoke FTA, UK firms would lose their automatic right to trade across the EU (and vice versa). While the third country access provisions introduced in recent financial legislation could provide an alternative means to mitigate the effects of a full UK exit on the financial markets, once trading under WTO rules, negotiating equivalence could unfold a rather cumbersome process after which the UK would be unable to have effective control of new financial regulation and secure rights akin to existing passporting. Through an analysis of the financial services passports under the EU single market directives and the pros and cons of each of the available trading models post-Brexit, this article advocates that continued access to the Single Market under the EEA Agreement –in its current form or in an amended version–, should offer the UK the most favourable framework to secure passporting –safeguarding jobs, economic growth and predictability for UK, EU and non-EU firms–, while retaining certain control over the internal market rules and possibly immigration.