‘Keep calm and carry on’ following the Brexit vote in June
The UK’s decision to leave the EU following the referendum vote on the 23 June has left the financial services industry facing an uncertain future. The result poses more questions than answers on what it will mean for financial regulation in the post-Brexit era. What we believe though is that while everything has changed, everything really remains the same following the Brexit vote.
In the immediate aftermath of the Brexit vote, we can expect a business as usual approach to regulatory compliance. At the beginning of 2016, Kay Swinburne, Conservative MEP and member of the European Parliament’s economics and monetary affairs committee, warned that in the event of the UK voting to leave the EU, firms would still need to comply with European financial services legislation. This view was reiterated by the UK Financial Conduct Authority in its referendum result statement. It advised that firms continue with their obligations under UK and EU law, including implementation plans for legislation that is still to come into effect.
The UK government has yet to announce when it intends to invoke Article 50 of the Treaty on the EU, which will trigger the official start of the UK’s withdrawal process from the union. Regardless of when Article 50 is invoked, most institutions will hope to suffer as little disruption as possible over the forthcoming years as the UK exits the EU. Many analysts believe it will take at least two years for the withdrawal process to be completed and during that time the UK will remain subject to EU law.
Financial services is already a highly regulated industry and this will not change as a consequence of Brexit. Many EU regulations already stem from international directives from the G20 and the Basel Committee on Banking Supervision, of which the UK is a party. The long term future of financial regulation within the UK will depend largely on the type of relationship it intends to seek with the EU.
The UK could adopt a similar line to Norway (by becoming a member of the European economic area and European Free Trade Association). Alternatively, it could become the new Switzerland by accessing the EU through bilateral agreements.
Brexit should see no immediate effects to financial regulation but the UK will undoubtedly lose its influence and ability to negotiate, change and challenge future regulations set by the EU. Until that point, the British wartime slogan ‘Keep Calm and Carry On’ would appear an apt description on how institutions should approach post- Brexit financial regulation.