"There is still a rule of law here. It is a safe haven and has been over the centuries. All the way from the Huguenots [French Protestant migrants in the 16th and 17th centuries]."

He admitted some banks could find the loss of passporting rights problematic. London mayor Sadiq Khan said such a scenario would be nothing short of a disaster.

Very real risks

Now that British voters have decided to leave the EU, the risks to London's finance sector are very real. Banks have already begun to weigh up the merits of shifting operations out of Britain, having approached euro zone regulators about securing licenses.

Australian insurer QBE, which earns about a third of its income from premium in Britain and Europe, says it will have to use newly established licensed EU entities.

How this issue is handled will not just have big implications for London's financial services industry but other renegotiation sticking points, including the vexed issue of immigration.

The problem for whoever replaces David Cameron as prime minister is that immigration and passporting are linked.


For Britain to retain access to the EU, of about 500 million people, it must accept key requirements, such as the free movement of people within the bloc. This is unlikely given Brexiteers vehemently opposed uncontrolled immigration during the long and bitter referendum campaign.

It is very hard to see a way around this contradiction.

Norwegian model

Leading Leave campaigner Boris Johnson argues Britain can somehow "extricate itself from the EU's extraordinary and opaque system of legislation" while remaining part of the single market. But most lawyers, politicians and business leaders believe this view is flawed.

Britain can adopt the so-called Norwegian model, which means joining the European Economic Area to gain access to the common market. But Norway accepts the free movement of people. Alternatively, tBritain can follow Switzerland, which enjoys access thanks to a series of bilateral treaties with the EU.

The financial services sector is excluded from these arrangements. Indeed, no country with complete access to the single market has managed to avoid signing up to the free movement of people.

In case there was any doubt, Bank of France governor Francois Villeroy de Galhau made the euro zone position clear over the weekend.

"There is a precedent. It is the Norwegian model of European Economic Area that would allow Britain to keep access to the single market but by committing to implement all EU rules," he told French radio.


Immigration rules

Cameron argues any trade-off between accepting EU immigration rules and gaining access to the single market should favour the "closest possible economic relationship" with the euro zone.



Even if the UK is prepared to sign up to EU immigration rules, it is not certain it will be offered passporting rights. The continent's secondary financial cities, Paris, Dublin and Frankfurt, are desperate to lure banks away from London's square mile financial district.

"We will be rolling out the red carpet" for London's bankers, Paris deputy mayor Jean-Louis Missik promised in the event of Brexit.

Franco-German negotiators will therefore not be in a generous mood when talks start, given passporting is estimated to be worth £10 billion ($18 billion) to the British capital.

Of course, passporting is not the only factor financial institutions take into account when they base their European operations in London. Language, workplace laws and personal and corporate tax rates are important considerations.

One of the main reasons London is a global financial capital is because it has adapted to change better than most of its rivals over the years. It will need to be particularly flexible to solve the passporting problem brought about by a referendum won by an anti-immigration campaign.