British financial institutions will lose key passporting rights across EU unless Britain remains part of the European single market or at least the European Economic Area (EEA), Bundesbank president Jens Weidmann warned.
In an interview with the Guardian, Weidmann added that London’s position as a global financial center would be dealt a severe blow if the UK government fails to negotiate a deal to remain within the single market.
"Passporting rights are tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area," head of the German central bank told the British publication.
Passporting rights allow firms to use London as a hub for EU clients without the need for licences. Without these rights, several London-based businesses would reconsider their location after Brexit, he opined.
"As a significant financial centre and the seat of important regulatory and supervisory bodies, Frankfurt is attractive and will welcome newcomers. But I don't expect a mass exodus from London to Frankfurt," he said.
He also cautioned that it was far too early to judge the economic impact of UK’s vote to leave the EU.
“Britain hasn’t even applied to leave yet,” he said.
“To assume on the basis of the developments so far that there won’t be any negative consequences would be to draw false conclusions. Great Britain is very closely tied to the EU and Germany. If you reduce these relations to that of a third country, it will suppress economic growth in Britain.”