McDermott Comment | Post-Brexit Implications for the Financial Services Industry
Arvin Abraham, attorney at law firm McDermott Will & Emery, said:
While a Brexit deal appears increasingly likely, the consequences for the financial services industry are still unclear. Any initial deal is likely to extend the transitional period for financial services to allow time to further develop an agreement in this complex area or put in place only a preliminary framework that will need to be developed through further negotiations.
It’s relevant in this context to also consider that while the consequences of a ‘no-deal’ Brexit on the UK financial services industry appear stark at first glance, many of the risks have already been mitigated and the impact may be muted.
In the absence of a deal on financial services, the UK will no longer be part of the EU’s single market for financial services, meaning that firms based in the UK will lose their ‘Passport’ to conduct financial services business in the EEA, limiting their ability to conduct outbound trading, advisory and other financial services activity. The same limitation would have applied for EEA based firms seeking to conduct financial services business in the UK, however the UK has put in place a Temporary Permissions Regime that allows these firms to benefit from a temporary Passport. While the EU is expected to follow suit and set up a similar regime, this has not been announced and the uncertainty over the treatment of the UK’s financial services sector is clearly being used as a bargaining chip in the current Brexit negotiations.
This all may matter less than many think. Most financial services firms have put in place contingency plans for an increasingly unlikely hard-Brexit, including creating or enhancing EU based hubs through which business requiring a Passport can be routed. Having had four years to implement plans for a worst-case scenario , the industry now has some breathing room to step back and assess the final outcome. Any deal that covers financial services or the extension of a transitional period will be a positive, but in the event of a worst case outcome the industry is largely ready.