Brexit – What We Are Hearing

September 22, 2016

As the debate widens and the complexity of the challenges of Brexit emerges, it is becoming increasingly difficult to simplify the issues at the centre of the discussion.  Much is being written and The Financial Times this week (w/c 19 September) had some interesting articles.

This is what we are hearing:

1. Whilst some academics continue to debate issues of process, the better legal view is that the Government is entitled to serve the Article 50 notice without Parliamentary approval. Moreover, we think the politics are currently such that it is unthinkable that Parliament would seek to overturn the result of the referendum.
2. There has been some discussion about whether the Article 50 notice can be withdrawn once given, thereby allowing the two-year period for negotiation to freeze. Although the legal argument may have some merits, it is unlikely that the Government would change its mind once it has triggered Article 50.
3. Free movement of people is likely to be the sticking point in negotiations.  There is an increasing sense that the UK’s requirement for restrictions on free movement of people means that it will leave the single market. 
4. Some kind of specific deal will need to be done on services but it will be highly complex and involve multiple long-term negotiations. 
5. Data suggests some 5,500 UK businesses rely on single market "passports" to do business across the EU whilst around 8,000 businesses in the EU use regulatory passports to do business in the UK.  However, the bulk of the UK-inbound passports are for retail insurance. Other critical passports, such as Mifid for investment banking and asset management, is more like 2:1 against the UK.  The total number of passports held by UK groups is about 335,000 covering multiple sectors whilst the total held by EU firms is about 23,500. This does not provide the negotiating power to the UK that exists with goods.  In addition, the politics of regional competitive pressure from Germany and France in particular means it is far from clear that a "clean" passporting deal will be possible in financial services.
6. There is an expectation that a tariff-free deal will be achievable on goods.
7. It seems likely that EU citizens living in the UK will be able to stay with equivalent rights granted to UK citizens currently living in the EU. It is also hoped that there will be a sufficient level of flexibility for highly skilled workers to move between the EU and the UK.
8. One of the post-Brexit issues will be how to ensure that regulations that apply across the single market remain consistent between the EU and the UK in the areas where the UK has access to the single market.
9. The timing of resolution of these issues remains unclear. Even if the Article 50 notice is served in early 2017, the UK will remain in the EU, single market and customs union for a further two years. Financial services businesses in particular are putting in place contingency plans now so they are able to execute on them quickly should the need arise.
10. There is an Italian constitutional referendum in November, French presidential elections in April/May 2017 and a German Federal election before October 2017 at the latest.  All of these add to the political uncertainty and mean that formal Brexit negotiations are unlikely to get underway in earnest before the outcome of those elections is known and understood.
11. Amidst the complexity, we remain confident that London will maintain its position as one of the three key global financial centres alongside New York and Hong Kong.  This is because of its geographic position, English language, a deep business and cultural infrastructure, Parliamentary democracy, the importance and integrity of English law, a long established and strong professional services support industry and a history of successful innovation.