Roger Margand, Partner at Spire Solicitors LLP, discusses what will happen next for Financial Services following Brexit.
As I am sure most of you reading this are aware, a large proportion of existing Financial Services Regulations derive from the European Union.
The UK has always been historically in the vanguard in terms of reform and financial services and the primary concern for UK based financial services institutions is given that the decision to Brexit means the capital markets are in limbo, whether and how any existing European legislation remain in place.
Proper EU countries financial firms carrying out authorised activities have to be regulated and if they are head quartered and regulated in one EU member state, they can operate and sell to other state without getting authorisation from each one.
This is why London has been such an attractive place for international Banks and other financial services institution to establish head quarters as they can then carry out operation in all other member states.
Authorisation is complex and costly and this is driving the speculation around whether large financial institutions will continue to remain in London.
The issue of concern would be that Banks and Asset Management firms cannot afford to wait for the outcome of negotiations before moving their operation and many will assume the worst case scenario and start the process of relocating operations and staff.
They may need to relocate in order to have a separately authorised subsidiary with a sufficient management presence inside the European Union and what seems entirely possible is that the separation process may be swift but the negotiations to establish the terms of the future relationship between the UK and EU will be slowed down by the competing imperatives in all 28 member states.
This is not helped by the potential five options for the UK’s BREXIT being; membership of the European Economic area/European Freetrade Association; European Free Association membership with additional co-operation on the basis by letter or agreements; Customs Union; World Trade Organisation membership only; or World Trade organisation augmented by a free trade agreement.
In terms of financial services, the Financial Conduct Authority has stated that any financial regulation deriving from European Union legislation will remain applicable until any changes are made which, of course, will be a matter for government and parliament.
Overall, I am afraid this is another example of how difficult it is to predict BREXIT’s long term impact on any UK based industry but given the strength of the financial services industry in this country, there is no doubt that there could be a significant impact if financial institutions relocate to ensure that their rights above to effectively “passport” their services across the EU are retained.
