In this alert we examine the potential implications for the financial services industry if, on 23 June 2016, the UK votes to leave the European Union (EU) – a scenario commonly referred to as “Brexit”. We look at the options for Brexit and why EU membership matters for financial services, before examining the potential impact of Brexit on certain key sectors, including Fund Managers, Investment Firms and Banks.

Options for Brexit

The difficulty in describing the potential implications of Brexit lies in the fact that there are several conceivable options, and we do not yet have visibility as to what Brexit would look like or what possible benefits might be achieved.  Therefore, the issue is not a simple question of “in" or “out”.

In the event of a vote to leave the EU, the terms of the UK’s exit would need to be negotiated (as would its future relationship with the EU) and it seems inevitable that there would be a period of uncertainty during the two years (or longer) this would take.  It is not yet known how favourable an exit the UK would be able to secure or what the terms of any future relationship might be, and it is likely that any future relationship would need to be voted on and approved by all Member States.  Outcomes in relation to key matters that would fundamentally shape the UK financial services industry would be likely to remain unresolved for some time following a vote to leave.  These matters would include:

  • the UK’s access to the EU “single market” (and the potential need for the UK to maintain measures which are “equivalent” or identical to EU rules in order to be able to do so);
  • more specifically, the ability of UK financial services firms to provide certain services into other EU jurisdictions without needing to set up a fully authorised subsidiary in each jurisdiction (passporting rights); and
  • the continuing impact of EU legislation on the UK (and the UK’s level of influence over such legislation).