On June 23rd 2016 Britain, Europe’s largest financial centre, will vote on whether to leave the European Union.
A number of analysts have stated that the country’s banking and fund management industries are among those that could lose most from the so-called Brexit, though much depends on the Trading terms Britain would be able to negotiate with the EU.
The following details some potential changes that could affect the financial services industry, which will likely have a knock on affect to investors, clients and policy holders alike:
Rules – The great majority of Britain’s Financial Services rules are derived from EU Law. Though Britain has gone further than EU requirements in some areas such as Banker pay and general capital requirements, a new rule framework would need to be devised within 2 years of exit.
Passporting – Businesses such as UK Insurers, Banks, Asset Managers and payment service Providers who are authorised in Britain have “passport” rights to conduct business in all EU countries, either remotely from Britain or from a branch in another member state, which would be lost on exit.
Having voted to leave Europe Britain could join the European Economic Area (EEA) which has Norway, Liechtenstein and Iceland as Members which would allow financial companies to continue to have passporting rights to the EU, although any influence over the formulation of rules going forward would be lost.
If Britain did not join the EEA (or was not accepted as a Member) then any UK firm wanting to operate in the EU would have an “equivalence” test to prove to Brussels that the rules in the UK where comparable to those in the EU.
Also, going forward UK companies seeking to offer financial services to customers in the EU may need to establish a subsidiary in the EU which could be more expensive than running a UK Branch.
To be clear we are not advising our Clients how they should vote on June 23rd as we all will have our own opinions. The purpose of this blog is to put forward some areas of consideration that may affect Financial Services, and we look forward to learning more from ‘both sides of the debate’ in the run up to the vote!