May as PM buoys banks' single-market hopes

LONDON (Reuters) - Britain’s banks are likely to welcome Theresa May as the next prime minister and will look to her to start negotiating for their continued access to the European Union’s single market after the country exits the bloc.

Britain's Home Secretary Theresa May speaks during her Conservative party leadership campaign at the Institute of Engineering and Technology in Birmingham, England, Britain July 11, 2016. REUTERS/Andrew Yates

Banks registered in the Britain are currently granted a “passport” to offer their services across the EU from their UK base, thus saving huge amounts on meeting capital requirements and other costs by not having to set up shop in each member state.

Britain has to negotiate new trading terms with Europe after it voted last month to leave the bloc, and banks like HSBC HSBA.L have said they would shift staff to the EU unless broad passporting rights were kept.

Some of May’s Conservative Party rivals in the contest to become prime minister had said Britain should not seek continued access to the single market as this would mean accepting the freedom for EU citizens to find work in the UK.

Her main rival Andrea Leadsom - who dropped out of the race on Monday to leave May as the only runner - had ardently campaigned for Brexit and said at the weekend the single market was “not a term that is any longer relevant to this discussion”.

May, who was in the pro-Remain camp, has adopted a more conciliatory stance since the referendum result and has signalled a willingness to compromise on the trade-off between single market access and curbing EU migrants.

“I want to be clear that as we conduct our negotiations, it must be a priority to allow British companies to trade with the single market in goods and services, but also to regain more control of the numbers of people who come here from Europe,” she said this month.

May has said she would not begin formal Brexit negotiations with the EU before the end of the year. There is no certainty over how the talks will play out.

The 59-year-old is more likely to seek a “soft Brexit” from the EU which maintains access to the single market for financial services, said Daniel Vernazza, lead UK economist at UniCredit.


A “soft Brexit” refers to seeking continued access to the EU’s single market to an extent in return for accepting some free movement of people. A “hard Brexit” - as advocated by Leadsom - would mean curbing EU migrants as fast as possible, even at the expense of cutting off single market access.

The City of London financial district has stressed the need to be able to continue recruiting finance staff from the rest of Europe. Several EU countries have said there can be no compromise on freedom of movement.

City of London policy chairman, Mark Boleat, sounded a note of relief on Monday after news that May was set to become the next prime minister.

“The City of London Corporation looks forward to working with her in supporting the City and financial and professional services,” Boleat told Reuters.

“It is crucial for the millions of people who work in these industries that we maintain our access to the single market, and UK businesses continue to have access to the global talent that will enable them to grow and remain globally competitive.”

May would be aware of the City of London’s importance to the economy, having worked for the Bank of England and as a financial consultant before becoming a lawmaker in 1997.

The pound and shares rose on news she was set to become the next prime minister, but financial lawyers said she would need to act quickly on trade talks because banks were putting some transactions on hold due to uncertainty.

“People need certainty as quickly as reasonably possible, at least on the process and broad timing, which would calm people down,” said Jonathan Herbst, a lawyer at Norton Rose Fulbright who advises banks.

“In terms of substance, clearly the right noises on the optimal trading position would be good,” he said.

Reporting by Huw Jones; Editing by Pravin Char