The May 2025 UK-EU summit delivered modest progress on agricultural trade and security cooperation, but for the financial services sector – the crown jewel of the UK economy – it represented yet another failure to restore critical passporting rights. This ongoing exclusion from the single market continues to hamstring British fintech innovators and traditional financial institutions alike, forcing them into costly workarounds that erode competitiveness.
The Passporting Black Hole: A Persistent Brexit Hangover
The Single Market Door Remains Firmly Bolted
Prior to Brexit, the UK’s financial services sector enjoyed seamless access to the European Economic Area (EEA) through the EU passporting regime. A single FCA authorization allowed firms to:
- Provide cross-border services to all EEA countries
- Establish branches throughout the single market
- Serve EU clients without local subsidiaries
Today, that access has evaporated. The 2025 agreement conspicuously avoided any mention of passporting restoration, instead reaffirming the EU’s uncompromising position on regulatory sovereignty.
Equivalence: A Pale and Unreliable Substitute
The EU’s piecemeal equivalence determinations offer no meaningful solution:
- Cover only narrow sectors like derivatives clearing
- Can be withdrawn with just 30 days’ notice
- Exclude core banking, insurance and investment services
Recent data from the City of London Corporation reveals that only 17% of pre-Brexit financial services activities qualify for equivalence-based access.
The Mounting Costs of Exclusion
Shrinking Market Share
- EU’s share of UK financial services exports has fallen from 40% (2019) to 28% (2024)
- £18 billion in assets have migrated to EU financial centers since 2021 (EY Brexit Tracker)
- 43% of UK-based financial firms have established or expanded EU entities (FCA Survey 2024)
Fintech’s Growth Constraints
The passporting loss hits fintechs particularly hard:
- 72% of UK fintechs previously relied on passporting for EU expansion
- Average licensing costs for EU market access now exceed £500,000
- Time-to-market has increased by 12-24 months for most firms
Strategic Responses and Their Limitations
1. The Subsidiary Route: Effective but Prohibitively Expensive
Major banks have absorbed the costs:
- JPMorgan: €200 million EU restructuring
- Barclays: €150 million Dublin hub
- HSBC: €180 million Paris expansion
For smaller firms, these costs are unsustainable. A recent KPMG study found that maintaining an EU subsidiary increases operational costs by 35-50% for mid-sized financial institutions.
2. Regulatory Workarounds: Increasingly Risky
Alternative approaches face growing scrutiny:
- Reverse solicitation: French and German regulators have issued 47 enforcement actions against UK firms since 2022
- EMI licenses: Approval times have stretched to 18 months with rejection rates nearing 40%
- Gibraltar access: Only covers 3% of UK financial firms’ EU business needs
3. Market Diversification: A Partial Solution
Many firms are looking beyond Europe:
- 61% of UK fintechs now prioritize US expansion
- Asian markets account for 28% of new business development
- Middle East partnerships grew 42% year-on-year in 2024
The Competitive Landscape: Winners and Losers
Advantaged Players
- Global banks with existing EU footprints
- Firms specializing in equivalence-covered areas
- B2B platforms with established EU partnerships
Disadvantaged Firms
- Digital banks relying on cross-border retail models
- Investment platforms serving EU retail clients
- Insurtech providers without EU subsidiaries
Looking Ahead: The New Reality
The 2025 summit confirms that passporting restoration is politically impossible for the foreseeable future. The UK financial sector must now:
- Accept permanent fragmentation and budget accordingly
- Prioritize non-EU growth markets to offset losses
- Lobby for incremental improvements in sector-specific equivalence
- Invest in regulatory technology to manage compliance complexity
As noted by Dame Elizabeth Corley, Chair of the Financial Markets Standards Board: “The UK financial sector’s future lies in being differently competitive, not in recreating past access arrangements.”
Key Data Sources
- Bank of England Financial Stability Report (June 2025)
- FCA “The Changing Landscape of UK Financial Services” (2024)
- EY Brexit Tracker (Quarterly Update Q2 2025)
- City of London Corporation “EU Equivalence Assessments” (2025)
- KPMG “The Cost of Fragmentation” (March 2025)
- UK Finance “Fintech Growth Report” (Annual 2025)
Expert Commentary
- “The EU’s stance reflects fundamental sovereignty concerns, not just technical financial regulation.” — Professor John Armour, Oxford University
- “Fintechs face the toughest adaptation challenges, needing to completely rethink their European strategies.” — Sarah Kocianski, Fintech Analyst
- “We’re seeing the emergence of a two-tier City – those who can afford EU access and those forced to retreat.” — David Buik, Market Commentator
Regulatory Timeline
- 2026: Expected EU review of third-country access frameworks
- 2025 Q4: Gibraltar passporting expiry deadline
- 2025 Q3: Next UK-EU financial dialogue session
Final Analysis:
The UK financial sector’s European ambitions now face permanent constraints. While global banks can navigate the new reality, the passporting loss particularly threatens the UK’s fintech leadership position. The coming years will test whether innovation and global focus can compensate for diminished EU access. One thing is certain – the pre-Brexit operating model is gone forever.
