Financial institutions based in Britain will lose so-called passporting rights allowing them to operate across the European Union unless post-Brexit Britain is at least part of the European Economic Area, ECB policymaker Jens Weidmann has said.
“Passporting rights are tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area,” Weidmann was quoted as saying in an interview with Britain’s Guardian newspaper.
Passporting rights are considered to be one of several important factors underlying the strength of the City of London financial district and there have been many warnings that losing them would represent a severe blow for the industry.
Weidemann is the president of the Deutsche Bundesbank and, as such, a member of the European Central Bank’s Governing Council. During the referendum campaign, he came out publicly in support of Britain’s continued membership of the EU, saying the bloc had given the country an economic lift and posed little threat to London.
The German central bank chief also said he expected some London-based businesses to reconsider the location of their headquarters after Brexit.
“Of course several businesses will reconsider the location of their headquarters,” he said in the interview, held with the Guardian and other newspapers including Germany’s Sueddeutsche Zeitung.
“As a significant financial centre and the seat of important regulatory and supervisory bodies, Frankfurt is attractive and will welcome newcomers,” he said referring to the charm offensive of the German financial capital.
Home to the European Central Bank, the EU’s insurance regulator EIOPA and 198 banks, Frankfurt is a natural contender in the battle to lure the City of London’s financial behemoths.
“But I don’t expect a mass exodus from London to Frankfurt,” Weidmann added.
Indeed, the city on the Main has never truly challenged London for pre-eminence in Europe, although that could change after Brexit.
Elsewhere in the interview, Weidmann also expressed scepticism about calls from ECB President Mario Draghi to complete monetary union with a political union, saying there is no willingness among governments in Germany, France or Italy to cede control over their national budgets.
He further said the European Central Bank suffers from a conflict of interests due to its dual responsibilities for setting monetary policy in the euro zone and for supervising banks.
Britain’s shock vote to leave the EU on 23 June has sparked questions over its role as Europe’s financial capital, with cities like Frankfurt, home of the European Central Bank, and Dublin also hoping to cash in on any move out of London by financial companies.
The issue of whether euro clearing houses can remain in the British capital is set to be one of the most contentious issues as Britain seeks to negotiate its future trade relationship with the EU after its departure.
French President François Hollande warned that Britain’s City of London financial district would have to give up its role in processing euro currency transactions after it leaves the European Union.
Britain has jealously guarded its status and won a recent EU court decision against the European Central Bank in order to keep hosting the euro deals.