A study conducted for European banking lobby AFME said on Monday that banks in London would be hit hard if Britain left the European Union causing a long spell of uncertainty.
The 68-page study commissioned from law firm Clifford Chance considered the potential impact of “Brexit” in a referendum on June 23.
It is the latest warning that Brexit would be bad news for the financial services industry, which operates across the EU and is Britain’s biggest tax-earning sector.
The study said, “Banks and investment firms are likely to be significantly and adversely affected by new restrictions on cross-border business”.
Many international banks such as JPMorgan, Morgan Stanley and Goldman Sachs, have their European bases in London, which is the EU’s biggest financial centre, and would lose their “passport” under EU law to offer services across the bloc.
The study further said, “This ‘passport’ is key to the UK’s appeal for many non-EU financial institutions”.
Campaigners who want Britain to leave the EU say the UK could negotiate favourable new trading terms given the size of its financial centre and economy. They also argue Britain could write its own financial rules outside the EU.
The study said the EU can grant passports to non-EU lenders, which “could be an important mitigant allowing wholesale cross-border investment services to be provided in the EU”.
But to obtain a passport, a non-EU lender would have to comply with rules the EU deemed to be “equivalent”, or as strict as its own.
Like Norway, Britain would need to be a member of the European Economic Area (EEA), which offers some of the benefits of the EU’s single market without being an EU member.
Unless Britain was in the EEA, any replacement trade agreement would have the potential to restrict cross-border trading, the study added.
Exchanges and clearing and settlement houses for securities could also be hit by new restrictions unless they are recognised as “equivalent”, the study said.
According to Chris Bates, a partner at Clifford Chance, “There is likely to be a long period of uncertainty after a vote to leave as to whether these regimes will be available, which will affect market participants’ business planning”.
Deutsche Boerse (DB1Gn.DE) and the London Stock Exchange (LSE.L) announced last week said their plans to merge would not be derailed by a Brexit.