Proof Europe’s banks will want to cut a deal to trade in the City

EUROPE would bear the brunt of the pain if rules allowing banks to operate across the Continent were torn up following Brexit, figures suggest.

The Financial Conduct Authority revealed that 8,008 financial firms based in the European Union, including banks, insurers, payments firms and traders, rely on ‘passports’ to do business in the UK.

That is 46pc more than the 5,476 Britishbased companies – many of which will be American and Japanese banks with bases in London – that have a passport to do business in the EU.

The figures from the City watchdog underline London’s importance as a global financial centre with nearly 13,500 firms doing business in or with the UK under EU rules.

But Brexit campaigners said the figures also show that Europe’s financial industry would be clobbered if Britain’s withdrawal from the single market meant passporting rights were scrapped.

The so-called passport gives companies operating in one EU state access to the other 27 – encouraging many international banks to set up European headquarters in London. There are concerns that firms will lose their passports if Britain leaves the single market in what has been dubbed a ‘hard Brexit’. Whether British companies could retain their passports to do business in the EU has become a key battleground for Brexit negotiators.

Jens Weidmann, head of the Bundesbank, Germany’s powerful central bank, this week warned that the current arrangement was ‘crucial’ for the City of London. ‘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 European Economic Area,’ he said.

But international credit ratings agency Moody’s played down the threat – saying the impact would be ‘manageable’ and ‘modest’.

Brexit campaigners said it was in everyone’s interests for passporting rights to be maintained after Britain leaves the EU – arguing that more European companies than British ones would suffer if they are withdrawn.

Conservative MP John Redwood said: ‘We have by far and away the biggest financial markets in Europe, and many companies on the Continent rely on our markets to carry out business for their customers.

‘I have always thought we would keep the passports because it is the easiest thing for both sides, and I have always thought that the passports were more valuable to the Continent than to us.’

David Buik, a market analyst at Panmure Gordon, accused European Union leaders of ‘sabre rattling’ by threatening to withdraw the passport. ‘Let good sense prevail,’ he said. ‘The EU has grossly underestimated how much they will need passporting to conduct business in the UK.’

Andrew Tyrie, chairman of the Treasury Select Committee, said protecting the interests of UK firms ‘needs to be right at the top of the in-trays’ of the Government and Bank of England. ‘These figures give us an initial idea of the effects of losing full access to the single market in financial services,’ he said. ‘The business put at risk could be significant. Almost 5,500 UK firms are using passports to do business in Europe, and over 8,000 European firms are using passports to provide services in the UK.

‘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.’