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What is a banking passport?

Tom Belger | 07:29 Friday 14th July 2017

A number of new specialist and challenger banks could turn to a banking passport as they look to increase their market share and customer base .

In recent weeks, Starling has secured a banking passport to launch products in Ireland, while Monese is set to expand into 19 additional European countries.

But what exactly is a banking passport, how do banks obtain one and what are the benefits?


What is a banking passport?

According to the Prudential Regulation Authority (PRA), a firm authorised in a European Economic Area (EEA) is entitled to carry on permitted activities in any other EEA state by exercising the right of establishment or providing cross-border services.

Known as 'passporting' the activities which are allowed are set out in the relevant EU single market directives and those activities not covered will require the firm wishing to carry on such activities to contact the relevant authority of that host state to determine whether direct authorisation is needed.

If a regulated firm plans to passport out or into the UK under single market directives, the firm or the EEA home state supervisor should inform the appropriate UK regulator of the firm's intention to do so.

The PRA is the lead regulator for outward passports for dual-regulated firms and will consult the FCA in respect of all passport notifications.


The PRA will be responsible for assessing these notifications:

• Capital Requirements Directive (2013/36/EU)
• Solvency II Directive (2009/138/EC)
• Insurance Mediation Directive (2002/92/EC)
• Markets in Financial Instruments Directive (2004/39/EC)
• Undertaking Collective Investment Scheme Directive (85/611/EEC)
• Payment Services Directive (2007/64/EC)
• Second Electronic Money Directive (2009/110/EC)
• Alternative Investment Fund Managers Directive (2011/61/EU).


How do banking passports work?

Passporting allows banks and financial services firms to sell products and services across EU borders on the same basis as if they were present in the market of sale.

It also enables banks to establish branches in other EU states on preferential terms.

Whereas the branches of non-EU banks in EU member states are treated as foreign and are in many cases subject to additional and often burdensome regulatory requirements, passport banks are treated as if they were locally authorised.

The passporting system has been extended to cover the EEA, which includes Norway, Iceland and Lichtenstein.

However, banks or financial services outside of the EU and the EEA cannot currently access the passporting regime.

To access this, these banks must either establish a regulated business inside the EU or apply for a licence under the domestic licencing regime of each individual EU country they want to provide services in.


Will more banks apply for banking passports?

George Bevis, CEO of Tide, commented: “We do expect more challengers to seek passports, because UK bank challengers are among the most technologically advanced in the world and it makes sense to offer their advanced services to as many customers internationally as possible.'

Anne Boden, CEO and founder of Starling Bank, believed that it was likely that there would be lots of new banks which would apply for banking passports.

“We've seen step changes delivered in communication, social, music, shopping and more.

“But that change has taken a long time to come to finance and banking.

“Financial technology is now growing around the globe because it can deliver real transformation.

“New banks – like us at Starling Bank – can help people have better relationships with their money.

“But it's also important to keep in mind that getting a banking licence is not an easy process.

“It's not for the faint of heart!'

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