Banks and financial institutions based in Britain will lose their passporting rights unless the UK remains part of the European Economic Area (EEA) after Brexit, a senior European Central Bank policymaker has said.
Britain is yet to trigger Article 50 of the EU constitution, which would effectively rubber-stamp its intention to leave the bloc, but the pressing concern for worldwide lenders is to ensure they retain access to the European banking passport system.
This allows banks and other financial institutions authorised to operate in an EU country, or a state member of the EEA, to conduct business across the union.
"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 EEA," Jens Weidmann said on Monday (19 September), while speaking to a number of European newspapers.
He added that a number of London-based firms could relocate elsewhere in Europe after Brexit, although he did not anticipate a mass exodus.
"As a significant financial centre and the seat of important regulatory and supervisory bodies, Frankfurt is attractive and will welcome newcomers," he explained.
"But I don't expect a mass exodus from London to Frankfurt."
Paris, Dublin and Frankfurt have all been touted as possible destinations for financial firms looking to move away from the UK after Brexit and the vice-president of the European Commission said the City of London would suffer severe consequences, should Britain decide to leave the European Union's single market.
"If [the British government] decides to leave the European internal market as well as the European Union, it would have serious effects for the City of London," Valdis Dombrovskis told German newspaper Handelsblatt earlier this month.
"At the moment British banks only need a license for one EU state to be able to be active in all member countries. The banks would lose this EU passport if Britain no longer wants to completely respect the rights and duties of the European internal market after it has left the EU."
Meanwhile, Weidmann added that it was too soon to suggest Britain had weathered the post-Brexit turmoil, despite the positive economic data released over the last couple of weeks.
"To assume on the basis of the developments so far that there won't be any negative consequences would be to draw false conclusions," he said, adding Britain had not even applied to leave the EU yet.
"Great Britain is very closely tied to the EU and Germany. If you reduce these relations to that of a third country, it will suppress economic growth in Britain."