INTRODUCTION
In an increasingly interconnected global economy, businesses—particularly those in highly regulated industries such as finance and financial technology (fintech)—seek efficient ways to expand across borders.
Passporting of licences is a regulatory framework that allows a company authorized in one jurisdiction to operate in other participating jurisdictions without needing to obtain separate licences in each country. This mechanism is designed to reduce bureaucratic hurdles, streamline compliance, and facilitate seamless market access. Passporting is most commonly associated with financial services, where institutions such as banks, insurance providers, and fintech firms can leverage a single regulatory approval to offer their products and services across multiple regions.
The system originated in the European Economic Area (EEA), where firms licensed in one member state can operate throughout the region without additional regulatory approvals. As other regions, including Africa and Asia, explore similar frameworks, passporting is becoming an essential tool for businesses looking to scale internationally while ensuring regulatory compliance.
HOW DOES LICENCE PASSPORTING IN FINTECH WORK?
Single Market Passporting: In a single market initiative, like the European Union (EU), all players will be subject to the same standards for licensing/authorisation and thus regulators across board will be able to rely on each other's internal processes or mechanisms for licensing. In the EU, financial institutions authorised in one EU country may apply for the right to provide certain services or open branches in other countries off the back of their single authorisation. They will then be subject to only a small number of additional requirements.
Fintech Bridge Passporting: Passporting may also be based on fintech bridges. Fintech bridges are agreements outlining the collaboration between two governments and the cooperation between their regulatory authorities, connecting two markets and financial ecosystems. An example is the memorandum of understanding between the Bank of Ghana and the National Bank of Rwanda. Such agreements are intended to co-ordinate licensing regimes and structure easy data exchange between the state parties' regulatory bodies, enabling the provision of cross-border services.
Regional Co-operative Passporting: Regional unions may also form regulatory co-operative regimes which provide for fintech passporting. In such cases, there is not necessarily a formation of a single market, however multiple countries in a geographic or economic region come together to develop a regime for the passporting of fintech licences or a mutual recognition system for fintech licences. An example is seen in the ASEAN Banking Integration Framework (ABIF).
Cross-Border Regulatory Sandboxes: These sandboxes can be used as a foundation for a passporting regime by streamlining licensing processes across participating jurisdictions. The sandbox would necessitate a development of common or overarching regulatory standards for participating countries and allow fintech companies to pilot their products in more than one market. After a successful pilot, the fintech companies may be granted licences or authorisations to fully launch in the participating countries with certain relaxed regulatory requirements. Although not specifically described as passporting, the AFI Pacific Regional Regulatory Sandbox is an example of this.
BENEFITS OF PASSPORTING
Passporting has many benefits for fintech companies, regulatory authorities and consumers, ranging from reduced costs, reduction of regulatory hurdles, strengthening of regulatory co-operation and increased access to financial services.
Fintech Companies
Passporting offers fintech companies the chance to expand their reach into multiple countries or regions without the need to apply for separate licences in each one, thereby increasing market access and opportunities for business growth. This ultimately results in savings in both regulatory and operational costs, enhancing profitability and reducing administrative burdens. It also lends increased credibility and legitimacy to fintech companies, as they would have demonstrated compliance with regulatory requirements.
Regulatory Authorities
Passporting improves collaboration and data exchange between regulatory authorities, revealing insights for improving national regulatory regimes. Additionally, monitoring and oversight of fintech companies will be improved as it will be shared among co-operating authorities. Passporting will also lead to a reduced burden on regulatory authorities by streamlining licensing and supervision processes.
Consumers
Passporting simplifies fintech companies' entry into different markets, ensuring that consumers have a myriad of service providers to choose from. This will lead to increased competition and innovation, improving the services available to consumers in each market. It will also improve financial inclusion, as more fintech companies will target underserved populations.
PASSPORT LICENSING AROUND THE WORLD
Here are some key passporting and related frameworks relevant to fintech:
1. European Economic Area (EEA) – Financial Services Passporting
Banks, payment institutions, e-money institutions, investment firms are covered under the passporting regime. The regime is governed by the following key legislations:
- Revised Payment Services Directive (PSD2) – covers services including payment services and electronic money services.
- Markets in Financial Instruments Directive (MiFID II) – covers investment services.
- E-Money Directive – allows e-money institutions to operate across EEA.
Post-Brexit: The UK lost passporting rights, and firms now use EU subsidiaries to maintain access to EU jurisdictions.
2. Australia & New Zealand – Trans-Tasman Mutual Recognition Scheme
Fintech firms licensed in either country can operate in the other with minimal additional requirements. This applies mainly to firms involved in the offering of securities and is administered by the Australian Securities and Investments Commission (ASIC) and the New Zealand Financial Markets Authority (FMA).
3. ASEAN Banking Integration Framework (ABIF)
Countries in South East Asia launched the ABIF to provide for mutual recognition for banks operating in their markets. Under the ABIF, qualified ASEAN banks (QABs) are allowed easier access to the markets of ASEAN member states. QABs also acquire greater operational flexibility as they receive the same treatment as banks of the host country. Although it does not directly apply to fintech companies, some fintech firms, particularly in digital payments and banking sectors, benefit from this eased cross-border licensing.
4. Gulf Cooperation Council (GCC) – Fintech Licensing in United Arab Emirates (UAE) & Bahrain
Bahrain's Fintech Regulatory Sandbox and the UAE's Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC) free zones allow licensed fintech firms to operate in multiple Gulf markets with fewer restrictions. Some GCC countries have bilateral fintech cooperation agreements with other countries which include market access conditions for the movement of financial services and investments in those countries.
5. United Kingdom (UK) Fintech Bridges
Post Brexit, the UK has entered into fintech bridge agreements with several countries including Singapore, South Korea, China, Hong Kong and Australia. While not full passporting, they provide regulatory cooperation and fast-track licensing for fintech companies expanding between the UK and these countries.
6. Canada-US-Mexico (CUSMA) – Financial Services Cooperation
Although there is no full licence passporting, fintech firms benefit from harmonized regulations which allow increased market access and equal treatment in each territory.
PASSPORTING AND THE AFRICAN CONTINENTAL FREE TRADE AREA (AFCTA)
Passporting is not a widespread concept in Africa compared to the EU and other regions. However, there have been discussions about its prospects on the continent. The conversation centres on building a strong foundation and capitalizing on the AfCTA, particularly in facilitating cross-border digital trade.
The establishment of the AfCTA provides a singular opportunity for the continent to develop a standardized and harmonised framework for the provision of financial services, providing for the passporting of all or some of those services. The framework should at a minimum focus on three key points:
- ensuring that the framework is proportionate to the risk inherent in financial service provision;
- providing robust corporate governance standards for financial service providers, encouraging the adoption of fintech bridges between African countries and other jurisdictions with robust regulatory regimes: and
- expanding access to regional cross-domain instant payment systems such as the Pan-African Payment and Settlement System (PAPSS).
CONCLUSION
Fintech passport licensing is a game-changer for financial innovation, enabling firms to expand across borders with reduced regulatory friction. By allowing licensed entities to operate seamlessly in multiple jurisdictions, passporting fosters financial inclusion, competition, and economic growth. While the European Economic Area has long set the benchmark for passporting frameworks, regions like Africa are increasingly embracing similar models, potentially under the African Continental Free Trade Area (AfCFTA).
As the fintech sector continues to evolve, effective passporting mechanisms will be crucial in balancing regulatory oversight with innovation. Policymakers must ensure that frameworks remain robust yet flexible, fostering cross-border collaboration while maintaining consumer protection and financial stability. With the right policies in place, passporting can unlock new opportunities for fintech firms and contribute to the development of a more interconnected and dynamic global financial ecosystem.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
