An analysis of the post-Brexit landscape for European financial services, detailing how the loss of MiFID passporting rights spurred asset and job relocations while London preserved its global currency clearing dominance.
Educational content only — not personalized financial, legal, or tax advice.
Prior to the UK's exit from the European Union, London served as the undisputed financial gateway to Europe. This seamless integration was made possible by the EU's "financial passporting" regime, established under directives like the Markets in Financial Instruments Directive (MiFID). Passporting allowed any financial firm authorized in the United Kingdom to sell its services, set up branches, and conduct cross-border business across all 30 European Economic Area (EEA) member states without needing separate regulatory approvals from each host country. This system enabled a US or Swiss bank to establish a single subsidiary in London and use it to service clients from Madrid to Munich, cementing London's role as Europe's central investment banking hub. This chapter is one of the most critical in the modern era of the UK's financial history.
When the Brexit transition period officially ended on December 31, 2020, the UK's financial passporting rights evaporated overnight. Unlike trade in physical goods, which was covered by the UK-EU Trade and Cooperation Agreement (TCA), financial services were largely excluded from the post-Brexit trade deal. Instead, the UK's access to the EU market was reduced to a unilateral, highly political mechanism known as "equivalence." Under equivalence, the European Commission can grant market access to a third-country if it deems that country's regulatory standards are as robust as its own.
However, Brussels chose to grant equivalence in only a few highly specific areas, withholding it for major sectors like wholesale investment banking and retail financial services. This deliberate withholding of equivalence was designed to reduce the EU's dependence on the City of London and encourage the repatriation of financial activity within EU borders. For London-based firms, this meant that doing business in Europe became significantly more complex, requiring them to comply with varying national regulations or establish fully capitalized subsidiaries within the EU.
In the lead-up to the 2016 referendum, several prominent economic consulting firms warned that Brexit could result in the loss of up to 100,000 financial services jobs in London, along with a massive exodus of capital. The reality, while still significant, has proven far more nuanced. According to reports from professional services firms like EY, around 7,000 to 10,000 financial services jobs have relocated from London to various EU hubs—a fraction of the initial dire predictions.
However, the shift in assets was much larger. Over £1.3 trillion in financial assets were moved from London to newly established or expanded EU entities in cities like Dublin, Luxembourg, Paris, Frankfurt, and Amsterdam. Paris became a major hub for investment banking staff, Frankfurt attracted significant banking assets, and Amsterdam overtook London as Europe's largest share-trading venue in the immediate aftermath of Brexit. Despite these shifts, London remains the largest financial services employer in Europe, with over 400,000 workers in the City, supported by its deep domestic talent pool, professional legal services, and the regulatory expertise of the Bank of England.
Despite the structural loss of passporting rights, London managed to preserve its dominance in several critical pillars of global finance. Most notably, the UK kept its near-monopoly on Euro-denominated derivative clearing. Recognizing that forcing European banks to immediately stop using London clearing houses like the London Clearing House (LCH) could destabilize the entire European financial system, the European Commission granted temporary equivalence for clearing services, which has been repeatedly extended. This clearing dominance ensures London remains indispensable to European monetary transactions.
Furthermore, London maintained its massive lead in global [foreign exchange trading volume](/article/city-of-london-financial-district), which remains insulated from European Union regulatory reach. The UK has also pivoted rapidly toward fintech, green finance, and venture capital, sectors that do not rely heavily on traditional EU passporting rights. Supported by a supportive regulatory sandbox from the Financial Conduct Authority (FCA) and flexible [monetary policy](/article/bank-of-england-global-interest-rate), the UK remains the top destination for venture capital in Europe, ensuring that while London lost its European passport, it kept its global crown. It also relies on domestic policies, such as reforms to corporate tax and property levies like Stamp Duty, to remain attractive to international investors.