(Bloomberg) -- The U.K. faces a choice between imposing immigration controls and letting its financial firms continue to trade freely with the EU, European Commission Vice President Valdis Dombrovskis said.
Dombrovskis, the bloc’s financial-services chief, said the EU’s 27 other countries would allow banks and other firms to maintain access to the EU single market with passporting rights as long as Britain doesn’t curb the freedom of EU citizens.
“The interests of the 27 is to preserve a good cooperation with the U.K. but as regards membership of, or access to, the internal market, it comes with conditions,” Dombrovskis said in a group interview with reporters in Brussels. “Passporting is once again linked to this question of the internal market: if the U.K. remains in the internal market, it can keep passporting.”
Three months after British voters opted to leave the EU, wrangling over Britain’s future relationship with the bloc has barely begun. As Prime Minister Theresa May prepares to trigger Article 50 to begin exit negotiations, she must balance voters’ calls for limits on EU citizens’ ability to work in the U.K. with the demands of financial firms to continue trading freely.
The EU’s passporting system -- which allows a firm authorized in one member state to do business in other countries of the European Economic Area, currently comprising the EU plus Iceland, Liechtenstein and Norway -- will be available to the U.K. if it continues to pay into the EU budget, respects EU rules and sticks to the bloc’s core “freedoms,” including the free movement of workers, Dombrovskis said.
Future relations “will depend to a large extent on which model of cooperation the U.K. will choose with the EU,” Dombrovskis said. “We do not have an answer to this question yet.”
Chancellor of the Exchequer Philip Hammond is said to be prepared to accept that Britain may have to give up membership of the single market to achieve the immigration restrictions that voters have demanded. Banks are pressing him to strike an interim agreement with the EU that would preserve their ability to provide services on broadly similar terms to now beyond the end of the official two-year negotiation period.
Passporting is a major attraction for big foreign banks, such as JPMorgan Chase & Co. and Citigroup Inc., that base their European operations in London. About 13,500 financial firms do business into and out of the U.K. under the passporting rules, Andrew Bailey, chief executive officer of the Financial Conduct Authority, said in a letter to Andrew Tyrie, chairman of Parliament’s Treasury Committee, published on Tuesday. Of those, about 8,000 are based outside Britain, underscoring the importance of Britain’s access to the single market for companies in the rest of the EU.