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December 11, 2018updated 06 Dec 2018 1:43pm

Financial passporting: why leasing is well prepared for departure

By Lorenzo Migliorato

Unlike most other financial services businesses, lessors are likely to be shielded from most Brexit-induced cross-border disruptions, thanks to the shape the sector has taken over the years. Lorenzo Migliorato takes a closer look.

Five months from the Brexit cut-off date, a possible deal around crossborder financial services remains one of the cruxes in negotiations. EEA passporting, which allows financial services firms to use their national licence to conduct business in any other member country, has made the fortunes of asset managers, insurers and investment bankers.

Companies in Europe and the UK are now spooked by the prospect of losing access to either market, and have been frantically lobbying to retain continuity of cross-Channel business.

But leasing firms? Not so much.

Asset finance, brokers and factoring providers whose parent entity hails from Europe would find themselves in a good position should UK regulators require branches be converted to subsidiaries, and apply for a UK licence.

A Leasing Life analysis of the Financial Conduct Authority (FCA) register found that virtually all foreign-owned lessors operating in the UK do so through an FCA-authorised subsidiary rather than relying on passporting. There are a few notable exceptions, both in the consumer and the commercial space.

Big asset finance names with EEA-authorised branches in the UK include Deutsche Factoring Bank, part of Deutsche Leasing; Crédit Agricole Leasing & Factoring (CALF); RCI Banque, which handles Renault’s retail deposit business; and ABN Amro’s newly established Asset Based Finance (ABF) division.

In emailed statements, CALF and Deutsche Factoring both say they do not run business lines in the UK, so loss of passporting would not affect them – Deutsche Leasing Group has a fully-licensed UK subsidiary.

Renault already relies on its RCI Financial Services subsidiary for vehicle financing, and a spokesperson said RCI Banque was in the process of obtaining a full UK banking licence in order to continue holding retail deposits.

ABN Amro – which previously had multiple asset finance subsidiaries but dissolved them following the consolidation under Netherlands-registered ABF – did not answer to a request for comment by the time of going to press.

But beyond sporadic cases, most foreign-owned lessors are likely to be able to continue operating without interruption, thanks to measures put into place throughout the decades. “To some extent, some of the organisations have been operating in the UK since passporting came into being” in the early 1990s, says George Tonks, partner at Invigors EMEA.

“If you go back to before that, why would you do anything other than set up a separate company?”

He adds that for extra-EEA companies that wanted to set up a pan-European leasing base, passporting business would have been conducted from an Irish subsidiary:

Ireland’s authorisation regime is among the more stringent in Europe, so a company with an Irish banking licence would be guaranteed to meet most other countries’ requirements for doing banking business.

A more tangible effect could be felt on the procurement cost of assets to be leased, as border tariffs on goods make them more expensive and the extra cost is consequently shifted on to lessees. “I think there are two sides to that,” says Tonks.

“The first is the cost implication for the goods, which as far as any asset finance company is concerned, is a cost that would be passed on to the customer.”

The second question mark revolves around getting assets into the country on a timely basis. “A lot of [assets] are really built to order,” says Tonks, meaning it would not be feasible to stock up to the extent required prior to the Brexit cut-off.

Still, these are problems that any industry built around the provision of goods will have to deal with – hardly leasing-specific issues. In that context, over the years lessors seem to have built their corporate structures as close to their markets as possible, true to their “real economy” ethos.

That is likely to leave them with few regulatory headaches around Brexit. “I don’t think anyone is in the position where it is only hitting them now, six months away,” says Tonks. “People had plenty of time to think about and take action – in the same way, I’m sure, all the big UK banks are looking at how they set up their banking operations throughout the EU.”

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