The UK Government has also committed to a “temporary permission regime” as a backstop, which would allow EU firms to continue their activities in the UK for a limited period after withdrawal.
Andrew Bailey, chief executive of the FCA, has welcomed the transition period in a speech he made this week.
A vital element for Bailey was that passporting should continue post-Brexit.
“A key issue here is the need for continuing authorisation for firms which are undertaking cross-border business between the UK and the EU, and for which their passporting rights would be lost on the UK leaving the EU.
“Firms that rely on these [cross-border] rights would be unable to perform regulated activities in order to meet their contractual obligations until they gain authorisation from the state in which they were undertaking such cross-border business,” he said.
In December 2017, the FCA reassured firms that passporting would continue after the UK exits the EU, however this statement clashed with comments made by the EU’s chief Brexit negotiator.
Brussels-based adviser Brian Dunhill, from Dunhill International Financial Planners, said Bailey’s comments are “right on the mark” in regards to the need for passporting to continue post-Brexit.
Dunhill said the removal of passporting would have a major impact on small firms in particular.
“Passporting is one of the most integral parts to be able to continue to help an expat. In Belgium, for instance, most of our firm’s clientele are very transitional.
“The average tenure in Belgium is about three years, I started out with all Belgium clients and right now only about 30% live in the nation.
“So, if you could imagine the service level that would be needed every time someone moved to a new state in Europe, or if they moved back to the UK, you can see it could become quite immense,” Dunhill said.
He added it was great to see passporting will continue for the transition period, but said it is important to remember no decisions on Brexit have been set in stone.
“We have got to remember that for people in the financial services industry, this is the industry that is the lifeblood of the UK.
“Therefore, Europe is going to grasp that and use it against the UK in the negotiations, so I think this is last thing we are going to get clarity on because it is the last thing that Europe is going to concede,” he said.