Explained: Passporting financial services
The issue of passporting is back in the headlines following Deutsche Bank revealing it is considering moving chunks of its large UK operations to Germany if Britain leaves the EU.
According to the Financial Times: “London hosts more than 250 foreign banks, many of which have based their main European subsidiaries in the UK capital and gained an automatic passport to operate across the other 27 countries in the EU single market for wholesale financial services.”
Passporting is an integral part in the move towards the harmonisation of European professional services allowing eligible, authorised firms from EEA member states to operate within other member states.
For example a UK-regulated advisory firm may wish to conduct investment business in another EEA territory as some of its clients are now living there.
Passporting is a process where the UK firm makes an application to the UK regulator for permission to operate in a number of other EU member States.
The UK regulator will inform its EU counterparts that it is satisfied that the firm meets the criteria and the EU host authority will have 30 days to raise any objections. Whilst the firm will be authorised by the UK authority, it will also need to abide by the local regulations of the host nation.
Passporting essentially permits financial services to be exported in a controlled and effective manner, and allows authorised financial firms across the EEA to look after their clients wherever they choose to live, work or retire in the region.
A firm’s authority for passporting within the EU can always be checked against the regulators register to ensure that it is fully licensed and regulated by its home nation’s regulatory authority.
It is likely that the concept of passporting will become increasingly commonplace as the world becomes more globalised and as clients from all EEA member states are increasingly internationally focused.