There is still considerable uncertainty over how Brexit will actually work, both in terms of the eventual nature of our renegotiated relationship with the EU, and the time frame for implementation. In the payments industry, the biggest change will be in the area of licensing and passporting.
In a letter to Andrew Tyrie, chairman of the Treasury select committee, Andrew Bailey, chief executive of the FCA said: “A passport is a mechanism through which firms may exercise their right to provide services and their right to establishment. As such, a passport obviates the need to obtain separate authorisations from other member states.”
Changing the approach to passporting will affect the UK’s payment service providers (“PSPs”) the most. It’s highly likely that PSPs within the UK will need to establish a payment institution within the EU. If passporting goes, PSPs will have to move their headquarters to other European markets if they want to continue to offer services in passported countries, which will be costly and time consuming. Many UK merchant acquirers rely on passporting FCA regulatory licenses to support their local acquiring offers across the EU. Unless they already have licenses in other EU markets, merchant acquirers will need to seek new EU regulatory approval to operate across the continent, and to sign new merchant contracts.
According to data published by an MP committee, almost 5,500 UK firms rely on corporate “passports” to conduct business across the EU.
In a speech at the British Banker’s Association in July 2016, Philip Hammond reassured financiers that the UK consumer payments market is likely to remain innovative and forward looking and get passed the passporting issues, however, UK companies could lose their passporting rights if the UK does not remain part of at least the EEA (EU countries and Iceland, Liechtenstein and Norway) and efforts to secure an appropriate arrangement for UK-based firms will be one of the most challenging aspects of the negotiations about the UK’s future relationship with the EU.