However, beyond the short term response of markets, a Brexit triggers important questions about London’s position as Europe’s financial centre and the UK-based financial industry’s long-term ability to access the European single market. A loss of the EU ‘passport’ would have a profound impact on the sales and distribution strategies of financial firms located in London.
The strong British influence in the EU is also felt at the regulatory level. The UK plays an important role in the three European Supervisory Authorities (ESAs) in the financial services sector in terms of their technical input, physical resources and market expertise. Decreasing UK influence in the ESAs as a result of Brexit will be seen in the final content of legislation as well as on the way European supervisors agree to apply the rules.
In addition, the ESAs are funded through the EU budget and contributions from Member States, in accordance with their size. The UK leaving the EU will likely lead therefore to a decrease in the budget of the ESAs.
Regardless of the timeline for the UK’s exit, a withdrawal process that has not yet commenced, the much sought-after regulatory certainty will hinge on two important questions: how can the UK ensure the EU ‘passport’ for its financial services firms to access the EU singlet market? What domestic legislative changes will the UK have to undertake to ensure access to the EU single market?
In this briefing, prepared with the assistance of external advisers, we provide an overview of how various financial services subsectors might be affected, the daunting domestic legislative challenge the UK will face and the wider impact of Brexit of the EU agenda on financial services. It represents best efforts at predicting the situation in the first week of July 2016.