We have not considered the concept of ‘passporting’ in detail, as the scope and availability of passporting is already well known to the industry and the UK Government has indicated that it does not intend to pursue an approach that relies on the continuation of passporting. Instead we have focused on identifying what the alternatives to passporting could be.

Under existing EU law, there are ‘third country regimes’ already in place, which allow financial services providers from outside the EU to have access to parts of the EU financial services market.

This report contains a factual matrix which provides details of:

• the scope of the existing third country regimes – i.e. which areas of financial services are covered by third country regimes and which are not;
• the conditions that both the UK and UK-based financial services providers would need to satisfy in order to make use of the third country regimes. In most cases, the availability of those regimes depend upon the UK’s own regulatory regime being determined by the EU authorities to be ‘equivalent’ to the EU regime; and
• the processes for securing access under the third country regimes, both to understand the obligations that the UK and UK-based financial services providers would be subject to, and to give an indication of how quickly the necessary determinations could be obtained. There are legitimate concerns that even if the UK’s regime is actually equivalent at the date of Brexit, the question of whether the EU authorities will grant the necessary determinations – or will do so in time for the UK’s exit from the EU – is unclear. That, and the narrower range of activities covered by the third country regimes, suggests that relying only on those regimes will not meet the objectives for ‘maximum possible access’ which have been outlined by the UK. But the Prime Minister has also stated that the if its objectives cannot be secured, then the UK may proceed on the basis of "no deal" which would, effectively, mean that the UK would be relying on the TCRs to secure on going access to the EU.

As a result, the report concludes that the UK should be looking to reach a bespoke agreement with the EU, allowing wider, mutual rights of market access, to reflect the unique position of the UK in relation to the EU and reflecting their integrated and interdependent markets. The report provides insights into some of the mechanisms which could be used to structure a relationship based on this new approach, if enhanced access across the UK/EU border can be agreed politically.

The report also provides a detailed analysis of what the position would be if the UK, after Brexit, does not secure a bespoke agreement and is not able – or not willing – to comply with the conditions of the third country regimes. This analysis includes input from a number of key EU jurisdictions regarding the extent to which a firm from a non-EU country can undertake business in those jurisdictions without obtaining a local licence – for example, by relying on reverse solicitation, and the extent to which it could outsource activities from to the UK from a subsidiary established in those EU jurisdictions.

Finally, the report considers the importance of agreeing transitional arrangements and suggests measures that the UK should be looking to agree with the EU, as soon as possible, to give reassurance to the financial services industry on both sides of the future UK/EU border.