Wed, Jul 27, 2016
It will undoubtedly be several years before we can judge properly whether it was the genesis of new opportunities or a serious misstep. A second referendum has been ruled out and the idea of somehow legally blocking the British people’s decision to leave the EU is probably just a distraction.
Despite the protest marches and legal challenges, it now seems almost inevitable that the UK will leave the EU, although the timing of that is still mired in uncertainty. Certainly, the two years allowed for negotiation once Article 50 has been triggered does not seem long to decouple the UK from the plethora of EU legislation and rules across numerous different industries and sectors, let alone renegotiate a new relationship with the EU. Some commentators take the view that we are better using the two years to focus exclusively on managing our exit, and then to negotiate separately from outside. Whatever form the negotiation takes, it is going to be a highly challenging exercise with unmatched levels of complexity. To say it will be a distraction for the government from business as usual is a massive understatement.
There are however, some things we can be reasonably certain about:
The UK being a ‘third country’ for the purposes of EU financial services legislation will not be a disaster, particularly in the wholesale markets. Although being outside the EU would limit the ability of UK firms to access some EU market participants, particularly retail investors, this does not represent a body blow to London. Some firms will have to establish themselves in the EU as a result, but that does not mean having to move all of their business operations to another country. As UK asset managers re-evaluate their operating model in a post-Brexit environment, third party management companies based in the EU will undoubtedly play a prominent role and become a consideration of choice. Duff & Phelps’ authorized “Super ManCo” entity based in Luxembourg, one of the first to obtain a third-party Alternative Investment Fund Manager (AIFM) license, provides an umbrella solution for Alternative Investment Funds (AIF) and Undertakings for Collective Investment in Transferable Securities (UCITS) companies across all asset classes and jurisdictions to access European investors while mitigating against political and legal uncertainty. This includes regulatory substance, hosting services and fund engineering, combined with risk and independent valuation services.
Before we all relax too much, it’s worth reflecting on a few things:
Conclusion
This fast-moving and constantly evolving situation makes it hard for market participants and investors to plan with any certainty. Everyone in cross border financial services, regardless of their current business model, should understand the potential impact of Brexit on their business. Clarity will emerge eventually, but in the meantime, it is sensible to explore the options that may be open to firms. Contingency planning, albeit at a fairly high level, will serve to calm stakeholders.