UK Financial Services Firms ‘Will Retain’ EU Passporting Rights: Foreign Secretary

By Dan Burns | July 25, 2016

British Foreign Secretary Boris Johnson said on Friday he expects the U.K. to retain the right for its financial firms to sell services across European Union member states after Britain’s exit from the bloc.

Johnson, speaking to reporters in New York about Britain’s business and investment environment, also said Britain has been approached by several countries interested in trade deals after U.K. voters chose last month in a referendum to secede from the European Union.

The British government needs to negotiate a new relationship with the EU once London triggers Article 50, the formal start of divorce talks, which could take a year or longer. One main concern that remains is whether Britain’s financial services sector will keep its so-called “passporting” rights, and when asked if he believed that would be maintained, Johnson said: “I do. I do.”

Passporting is a lynchpin feature of the EU’s single market, especially for banks, as it allows firms to provide services to clients across the EU. The loss of it for U.K.-based firms could cripple London’s standing as a global financial center.

“There are two reasons for optimism about London,” Johnson said.

First, London offers the deepest pools of liquidity, talent and skill for the capital-formation needs of businesses across Europe, he said. “In the European time zone, London is the place to do it. That will continue.”

Second, an open relationship for goods and services is essential given the depth of trading between Britain and the continent, he said. “It’s very much in the interest of both parties to keep those flows going.”

On the issue of non-EU trade relationships, Johnson said he had “been amazed” by the number of countries approaching Britain in the weeks since the vote expressing interest in new trade deals. Singapore, Malaysia, Australia and India had all made contact about trade, he said.

Appointed last week to the newly formed Conservative Party government of Prime Minister Theresa May, Johnson was making his first visit to the United States as foreign secretary, including a stop at the United Nations and a meeting with chief executives of multinational businesses.

Johnson told reporters that he had received reassurances from those companies, including banks, drug makers and manufacturers, that Britain remained “very much part” of their global business footprint, although they expressed concern over the uncertainty ahead over how the U.K. government negotiates its separation from the EU.

Nonetheless, Johnson said: “They regard this as an opportunity for the U.K. If we get this right, this can be a fantastic thing.”

A growing number of U.S. companies are broadly conceding that the so-called “Brexit” could weigh on profits.

Wall Street investors were originally rattled by the vote and independent analysts have suggested it could cost U.S. companies billions of dollars in earnings because of currency factors and to lost sales in Europe. Roughly 38 of 63 S&P 500 companies with quarterly conference calls since the end of June have talked about Brexit.

Even before the referendum, the prospect of a Brexit outcome was a sufficient threat to the economic outlook to prompt U.S. Federal Reserve monetary policy makers to forestall a possible interest rate increase at their mid-June meeting.

In the aftermath of the referendum, yields on long-dated U.S. government bonds fell to record lows on concerns that Brexit would drag on growth, creating a challenging environment for long-term savers such as pension funds and insurers.

The dollar has strengthened by more than 4 percent against a basket of major trading partner currencies in the four weeks since the referendum. The British pound has shed more than 12 percent of its value against the dollar, while the euro has dropped around 3.7 percent.

The strength of the dollar has been of particular concern because it hurts demand for U.S. products abroad, and Britain is the largest market within the EU for U.S. exporters. In 2015, U.S. companies exported more than $56 billion of goods and services to the United Kingdom and nearly $273 billion to the full EU trading bloc.

(Reporting by Dan Burns; editing by Grant McCool)

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