Question

Discuss why Brexit is a key component to the financial system in the US?

Why is Brexit important for a stable world financial system?

Answer 1

The importance of the UK financial sector to the remainder of the EU is also pronounced. British banks lend EU businesses and governments nearly 1.4 trillion dollars. Many of the financial operations carried out in Europe are carried out either directly or indirectly in London (87% of the EU employees of US investment banks are based in London).

Financial services have become the subject of the majority of post-Brexit doom and gloom.

But six months later, in London, my financial friends all seem to be working out their everyday lives just as they had been before the referendum.

Passporting is the mechanism by which any British financial company, be it banks, insurance companies or asset management firms, is able to sell its goods and services to the rest of the EU without acquiring a licence, acquiring regulatory approval or setting up local subsidiaries to do so.

Passporting, together with a few other primary factors listed below, was one of the main reasons why a large number of financial institutions chose to set up their London headquarters. A recent study reported that almost 5,500 businesses in the United Kingdom depend on passports to do business with the rest of the EU. And the flows go in both directions. In the rest of the EU, more than 8,000 companies trade in the United Kingdom using passport laws. Is passporting going to proceed as Brexit looms? The response appears almost definitely to be no.
If it followed a 'Norwegian agreement' with the EU, the only way for Britain to continue to benefit from passporting would be.

But it is highly unlikely that a Norwegian-style approach will simply compel Britain to compromise on the very same issues (specifically, immigration) that led to the Brexit referendum.

So, are there other forms that UK companies could sell into the EU without passporting? A 'Swiss Contract' with the EU (essentially one based on reciprocal trade agreements) will be one potential solution.

But it also seems impossible to be a Swiss-style approach. As Capital Economics points out, "It is doubtful that the United Kingdom will have as strong a contract with the EU as Switzerland." When they were preparing to join the EU, the Swiss negotiated their deal; a nation leaving it would have less goodwill.'
And even if it has been done, there are serious doubts as to the feasibility of a model of this kind. More precisely, the "Swiss model" takes advantage of the so-called "third country equivalence" laws, which allow some of the third country equivalence laws to be carried out by non-member state firms.