"Brexit does not simply mean additional tariffs being imposed on trade... it is about whether banks have the legal right to provide services."
Writing in the Observer, Browne said that "major players" have project teams working out which operations they need to move to ensure they can continue serving customers. He believes that many smaller banks plan to start relocations before Christmas, while bigger banks are expected to start in the first quarter of next year.
Browne puts this largely down to the expectation that the UK will lose its passporting rights post-Brexit. He describes a financial services market that is underpinned 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
Browne warns that a “third-country equivalence” regime "is a poor shadow of passporting [which] only covers a narrow range of services, can be withdrawn at virtually no notice and will probably mean the UK will have to accept rules it has no influence over".
The IFS and Treasury Committee have also raised concerns over the effects of losing full access to the Single Market in financial services.
Treasury Committee Chairman Andrew Tyrie commented: “The business put at risk could be significant. Almost five and a half thousand UK firms are using passports to do business in Europe, and over eight thousand European firms are using passports to provide services in the UK.
“None of the current off-the-shelf arrangements can preserve existing passporting arrangements, while giving the UK the influence and control it needs over financial services regulation as it develops. Efforts to secure an appropriate arrangement for UK-based firms will be one of the most challenging aspects of the negotiations about the UK’s future relationship with the EU."
Browne says that as it take years to move operations, "businesses can’t wait to the last minute - banks might hope for the best but have to plan for the worst".
He concluded: "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.
"Banker colleagues in other EU countries all agree that disrupting the free trade in financial services would be self-inflicted damage. The top regulators in the UK and EU also agree that we must retain the integrated financial market. If we left it all to the regulators, we would have a relatively quick and rational economic solution. But politics trumps economics and it will be the politicians who decide. They seem keen to enter what will in effect be anti-trade negotiations."
