Sershen Ingram offers his perspective on what a Brexit could imply for regulation in the Financial Services industry.
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What would Brexit mean for investment banking?

Posted by: Clare Butler 07/06/16
The impending EU referendum presents the UK with an unprecedented decision that is surrounded by uncertainty. The ‘remain’ campaign backs a broadly known outcome in the form of reformed EU membership, while the ‘leave’ campaign supports a largely unpredictable scenario that is dependent on a number of variables.

While a vote to remain a member of the single market would have minimal effect on the UK’s current financial services market, a decision to leave would shift the regulatory environment significantly. Most of the UK’s cross border banking business, including investment services, is made possible by EU-level legislation.

Much of the relevant legislation incorporates equivalence processes for ‘third countries’ (non-EU) however there is a substantial risk that the UK’s two year notice period may lapse before equivalence decisions can be made and subsequently institutions could lose short or even long term access to EU markets.

In some cases, however, such as with the Undertakings for the Collective Investment in Transferable Securities (UCITS) legislation, which regulates investment funds, there is no equivalence regime, and in others cases such as with MiFID II the regime has never been used.

Of all EU regulation, Markets in Financial Instruments Directive (MiFID) is one of the most important for the banking profession, the legislation is fundamental to the ability of banks and investment firms to conduct business with other EU member states.

The legislation negates the need for licences when conducting business in other EU states, and this concept of ‘passporting’ is integral to the UK’s financial services market. Third country banks, such as those in Hong Kong and the US, must set up an authorised presence in all of the jurisdictions in which they want to conduct business.

If the UK were to remain a member of the European Economic Area (EEA) it would retain its passporting rights (in the same way that Norway currently does), however it is uncertain whether this would be the case given the vague and ambiguous nature of the ‘leave’ campaign, meaning that it is highly plausible that the UK could lose its ability to conduct investment business in member states if the decision is to leave the EU.

Having said that, many argue that a vote to leave would allow the UK to implement legislation that is more relevant to its financial services market.

While the polls hang in the balance it is uncertain which way the vote will swing, however what is certain is that financial legislation would have to adapt significantly in the event of a decision to leave.

A vote to abandon the bloc may also leave legal professionals uncertain about their career prospects; the changing regulation would undoubtedly call for a greater demand for compliance professionals, but may result in other roles being cut back.
Tagged In: Economy, Europe, In-house, UK
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