Brexit; Deal or No Deal? And the Aftermath
As per the referendum of 23rd June 2016 with majority of votes in favor of British exit, UK is due to divorce EU as of 29th March 2019 at 11 pm according to the UK time unless changes are unanimously agreed.
With the date coming close, the concern for financial institutions (FIs’), investors as well as for ordinary men are growing. Would a no-deal exit lead to catastrophe in the financial district especially once the news is announced? Would would happen to the British citizen’s residing in EU and vice versa, job mobility etc.
These apprehensions are valid as hedging strategies worth trillions of pounds would be impacted because of the changes in market, credit and foreign exchange risks. Moreover, the market clearing for most of the EU denominated derivatives occur in UK and EU banks have mostly used English laws for trading of securities and issuing debt. Therefore, regulations have to be adjusted by EU to ensure FI s’ remain compliant after the no-deal date.
Some of the UK companies have applied for licenses to continue trading with the European countries and continue covering a greater geographic demography. But for other companies, the transactions would not certainly become invalid right after the news is announced. In addition, there will be a transition period from 29th March 2019 to 31st December 2020 so that businesses can smoothly adjust to the regulatory changes before the new post-Brexit rules are imposed.
Cabinet after having a detailed discussion announced a ‘draft withdrawal agreement’ on 14th November 2018 to finalize a no deal in the coming days as Theresa May (the Prime Minister of UK) delivered the statement. She stated that no deal would be in the best interest of UK and would aid in bringing back monetary, laws and borders control as well as protect domestic jobs. Nevertheless, Twitter was full of criticism from the EU members that “ UK was attempting to ‘cherry-pick’ the best parts of the bloc’s rules in order to bolster the statement”.
Moreover, based on the draft version of agreement, UK owes amount 39 billion pounds to EU and clarifies some of the major concerns highlighted above. However, as UK has been part of EU since 1973 (around 44 years), the repercussions would be unprecedented and a lot of complex unanimous approvals would have to be made after the post-Brexit. Many decisions still need to be made so its important especially for FIs’ to stay ahead of news and come up with ways to mitigate the aftermath!
