Ian Borman Discusses Passporting with Estates Gazette

London-based Finance Partner Ian Borman was featured in Estates Gazette’s podcast titled “Passporting: The New Millennium Bug?” on March 20. The podcast addresses the decision by UK Prime Minister Theresa May to initiate Article 50 on March 29, which may result in financial institutions losing the right to passport around Europe and could result in a mass exodus of financial services from London. The podcast was highlighted in City A.M.’s article “Firms Need More Certainty to Plan Brexit Moves, Says Winston & Strawn Law Firm Partner” published on March 22.

In the podcast, Ian addresses many misconceptions of passporting, which may currently be relied on by many financial institutions operating internationally. He points out that changes in regulation have caused institutions to become increasingly subsidiarized. Most financial institutions that operate internationally have multi, separate businesses within their group with an appropriate local regulators and business plans. Larger institutions usually have multiple regulated bodies that operate in different countries in Europe and will be able to simply adjust their business between those different regulated entities to take account of Brexit. Also, “what you increasingly see is that companies and financial institutions have been retrenching back to national markets, and those entities are operating within a single border, so for those businesses Brexit will be less impactful,” he said. 

“The biggest impact will affect English, growing businesses who are looking to expand into Europe without taking on the full European regulatory burden but who will be unable to passport into Europe, assuming that there is absolutely zero passporting agreed as part of that process.” Ian said. It is highly likely that some level of passporting or regulatory “equivalence” will be maintained. But small institutions who are still trying to operate on a cross-border basis are still likely to be the most impacted. 

“Larger financial institutions are already geared toward being able to operate internationally without passporting. But regulators work by encouraging institutions to act in particular ways and to some extent the impact is likely to come through an expression of soft power,” Ian explained. 

Major financial institutions are relatively used to working in tight time scales. Realistically there is a period of six months to a year to determine how financial institutions need to operate after Brexit, or at least for the process to become clear. For instance, it could be made clear that there will be transition arrangements to mitigate the impact. “It will be disruptive to financial institutions if [the likely outcome] is not clear during that time frame, and there is no point in negotiating in a dark room on the last night how this is going to work, because financial institutions need some lead time and cannot just flick a switch.” However there is still time for an orderly process to operate within the two year time scale allowed.

“If there is likely to be a hard Brexit, institutions will have to plan for a higher impact on the amount of people moving. There is a tendency to overstate what the impact might be, but in times of low growth any impact will be negative.”

Ian advises on international finance transactions including acquisition finance, bid financing, and structured real estate financing. Ian’s practice includes the full range of debt financing and structured transactions including junior debt, restructuring, and secondary transactions.