The U.K. cannot hope to retain its financial passporting privileges if it pursues a so-called “hard Brexit” that involves a withdrawal from the European Union’s single market, according to Valdis Dombrovskis, the vice president of the European Commission.
“The issue is quite clear. EU passports are linked to the EU single market. So if the intention of the U.K. is also to leave the single market then indeed U.K. financial institutions cannot have EU passports,” declared Dombrovskis, who is also the European commissioner for the euro and social dialogue, speaking from Brussels to CNBC on Thursday.
“Those things indeed come together, so then the question is basically if you can rely on equivalence in certain sectors or establish sufficient presence within the EU to maintain an EU passport,” added the former Latvian prime minister.
So-called passporting rights allow financial services firms within the EU to run operations and offer services throughout the European Economic Area (which consists of the EU member states as well as Norway, Iceland and Lichtenstein).
During 2016, financial and insurance services contributed £124.2 billion ($157.46 billion) in gross value added (GVA) to the U.K. economy, which amount to 7.2 percent of the total, according to official government data published by the House of Commons. 51 percent of the GVA was generated in London. The sector also provides over 1 million jobs throughout the country.
Given the industry’s importance, the question of what becomes of the U.K.’s passporting rights once it leaves the EU is high on the agenda as a key discussion topic for exit negotiations.
Dombrovskis’ comments echo those of Luc Frieden, former finance minister of Luxembourg, who recently asserted that while the U.K. will remain an important financial services center, its exit from the EU would necessitate a reconfiguration of the status quo.
“‘Out’ is not ‘in’ and therefore I think the United Kingdom must know that it’s not going to benefit anymore over the passporting rights it used to have,” Frieden told CNBC last Friday in Luxembourg.