With the end of the transition period approaching on December 31, 2020, several British banks have announced to their customers residing in the European Union that their bank accounts will soon be closed.
The loss of the financial passport for British banks
The financial passport is a right for European banks, insurance companies, fintechs and asset managers to sell their services and products within the European Economic Area (EEA). For the UK banking sector, this financial passport represents no less than a fifth of its turnover.
One of the consequences of the loss of the financial passport is theobligation for British banks to close the accounts of their expatriate customers in an EU country. As a result, several banks have recently begun notifying their customers that their accounts will soon be closed.
Lloyds Group, for example, has notified 13,000 of its customers, as have Barclays and private bank Coutts. The customers who received this letter reside in various European Union countries, from Belgium to Italy, via Portugal, France, Germany and the Netherlands.
British banks must now open subsidiaries in the EU
To circumvent the loss of the financial passport, from January 1, 2021, British banks will have no choice but to open a subsidiary within the European Union to continue hosting the accounts of expatriate nationals.
But beware: there's no question of opening a single subsidiary in order to continue selling their products and services throughout the European Union. They will need to have a subsidiary in each EU country in which they wish to continue operating.
For most British banks, the costs would far outweigh the benefits, as the number of customers concerned would not be large enough. There are currently 1.3 million British expatriates in the European Union.
HSBC and Santander fare better, as both already have a legal presence in the European Union.
On the other hand, European banks can continue to offer their products and services in the UK, following a unilateral decision by the Bank of England. They will be granted a temporary license for 3 years, after which they will have to apply for a full license.