Months have passed since the UK’s historic EU referendum vote, and the broad outlines of and possibilities for the UK’s future relationship with the EU are starting to become apparent. However, while the precise mechanics, objectives and negotiation process of Brexit will be heavily debated over the next few months, we may not have full clarity on the eventual EU-UK endgame or any transitional arrangements for some time.
Given this uncertainty and perhaps limited time to implement necessary changes, we believe financial services businesses need to consider what the impact of a robust and relatively quick Brexit — i.e., that the UK will leave the EU and cease to remain a full member of all the political and most if not all economic institutions of the EU within the next three years — would be on their strategic, business and operational models.
Even within that baseline, there remains a potentially large spectrum of outcomes. However, we believe that a complete exit from the Single Market and the loss of passporting rights for financial institutions gives the best working hypothesis for strategic planning. We believe that, since the announcement of the Government’s intention formally to notify the EU of the UK’s intention to leave the Union (via Article 50 of the Treaty on European Union) by March 2017, the likelihood that the UK will cease to be a Member state by 1 April 2019 is strong.
On the basis of our conversations with financial institutions, politicians, civil servants and other policy experts on both sides of the English Channel, this paper anticipates how such a scenario might play out, from what might influence the negotiation to the ultimate deal. On this basis, we discuss the broad short-term strategic implications for financial institutions operating in the UK and explore some of the options and questions facing their boards, together with a discussion of the potential longer-term implications for the City of London (henceforth referred to as “the City”).
This paper is neither an exhaustive analysis of all possible scenarios, nor is it a forecast. Rather, recognising that time is short and that major strategic decisions will have to be made rapidly, we present a set of assumptions which we believe represent a sensible starting point for strategic planning and for the intellectual challenge that should accompany it. We are grateful to all those who have taken the time to contribute to our thinking and welcome the opportunity to debate and discuss the views presented in this document, which you can download below.
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