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The Brexit Briefing: Impact on the Evolution of Trade and Investment
Traders Magazine Online News, November 9, 2018
Since the United Kingdom voted to leave the European Union in June 2016, Brexit discussions have focused on the term of separation and its implication for UK and EU citizens. But the nature of the UK/EU relationship post-Brexit is also hugely important, especially for financial services. With less than 180 days until the split is official and just two years until the prospective transition period ends (conditional on the two sides agreeing on the terms of separation), market participants are increasingly beginning to examine the global implications of Brexit on the capital markets and how Brexit will transform the U.S. relationship with the UK and EU.
At SIFMA’s 2018 Annual Meeting, The Capital Markets Conference, in Washington, DC, experts from the financial services industry, the UK Government, U.S. regulators and academia addressed how firms are preparing for Brexit, what still needs to be accomplished, and the different scenarios for structures of a Brexit deal, including the possibility of no deal being reached
Financial firms are preparing for a multitude of Brexit scenarios. When asked about the potential impact of Brexit on American companies, Cathy Bessant, Chief Operations and Technology Officer for Bank of America, emphasized, “We’re amending our legal entity structures, so that we’re in the right place. We’re getting used to the thought of being regulated by new regulators, who may never have seen a company of our size before.”
Speaking specifically to the impact of Brexit on American markets, the U.S. Commodity Futures Trading Commission Chairman J. Christopher Giancarlo explained, “We will stay very focused on this until the end. No question it’s going to have an impact. But overall, our markets are strong.”
The question that then remains is, how disruptive will Brexit be?
Hard Brexit is defined as the UK leaving the EU’s single market to gain full control over its own lawmaking, budget and immigration policies, with no established preferential access to EU markets. Our panel indicated that the single market system for financial services will not work for the UK, because it’s intrinsically tied to the free movement of people, and immigration was one of the perceived drivers of the Brexit vote.
Damian Nussbaum, Director of Economic Development for the City of London, placed perspective on this issue when he pointed out, “The gazillion dollar problem is they [EU] see it as protecting the euro and the single market system, but it’s more than just about single markets.”
Additionally, the UK doesn’t feel it’s in its best interest to be a rule taker from the EU on how to run its financial markets, given the significance of its industry on the global stage. Instead, the UK wants a bilateral treaty building on existing regulatory equivalence regimes, like the EU-Japan Economic Partnership Agreement. As Alice Campbell, Economic Counsellor at the British Embassy, said, “The UK government is planning on the basis of a deal, but it is also planning for other scenarios.”
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