About 13,500 financial firms do business into and out of theU.K. under European Union passporting rules, underlining thesignificance of Britain's access to the single market for companieson both sides of the Brexit divide.

Andrew Bailey, chief executive officer of the Financial ConductAuthority, said 5,476 firms authorized in the U.K. use so-calledpassports in EU law to sell services via branches or cross-borderwithout a branch in other countries of the bloc. A total of 8,008firms authorized in other EU states do business in the U.K. underthese rules, Bailey wrote in a letter to Andrew Tyrie, chairman ofParliament's Treasury Committee.

The discrepancy between inbound and outbound numbers goes someway to bolster the U.K. banking lobby's argument that Europeanlenders would be hurt just as much as U.K. firms if Britain losesdirect access to the single market after it secedes from theEU.

“These figures show just how important passporting is for a widerange of financial services firms,” said Mark Boleat, chairman ofthe City of London Corporation. “They also demonstrate how the U.K.acts a gateway for firms from outside the EU that want to tradewithin the single market.”

The EU's passporting system allows a firm authorized in onemember state to do business in other countries of the EuropeanEconomic Area — currently comprising the EU plus Iceland,Liechtenstein and Norway. It's a major attraction for the bigforeign banks, such as JPMorgan Chase & Co. and Citigroup Inc.,that base their European operations in London.

“None of the current off-the-shelf arrangements can preserveexisting passporting arrangements, while giving the U.K. theinfluence and control it needs over financial services regulationas it develops,” Tyrie said in an e-mailed statement. “Efforts tosecure an appropriate arrangement for U.K.-based firms will be oneof the most challenging aspects of the negotiations about theU.K.'s future relationship with the EU.”

The FCA said U.K.-based firms hold a total of 336,421 passportsto do business elsewhere in the EEA, though they require separatepassports for different countries. “We count all passportsseparately; therefore a firm conducting one type of activity underone directive in 30 countries would be registered as holding 30passports,” the FCA said.

'Hard Grind'

The number of inbound passports stands at 23,532, the regulatorsaid. The total number includes business activities provided viabranches or cross-border without a branch, the FCA said. Inaddition, some EU directives require multiple passports fordifferent activities. The total provided “counts the passport only,irrespective of whether that passport covers one or multipleactivities,” according to the FCA.

The FCA handles passporting notifications under seven EUsingle-market acts, including the Markets in Financial InstrumentsDirective, Bailey said. The Prudential Regulation Authority dealswith passporting for banks and insurers under the CapitalRequirements Directive and Solvency II.

“No doubt the hard grind of establishing what best protects U.K.interests is already under way,” Tyrie said. “This issue needs tobe right at the top of the in trays of the Chancellor, the Governorof the Bank of England, and the U.K.'s lead negotiators.”

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.