This analysis is by Bloomberg Intelligence analysts Sarah Jane Mahmud, Ben Elliott and Alison Williams. It appeared first on the Bloomberg Terminal.
There’s a real chance the U.K. will vote to leave the European Union in a national referendum to be held on June 23. Discontent over the control that the EU exerts over Britain means the status quo doesn’t appear sustainable. Yet, the country’s exit from the 28-nation bloc after 45 years would be drastic, irreversible and may cause companies to relocate. The U.K. government’s promised renegotiation of EU membership or the bloc’s own reform initiatives, might not be enough to sway the public vote.
London fights Brexit as new mayor supports Cameron’s campaign
The anti-Brexit campaign is likely to receive a boost from the election of Sadiq Khan as London’s mayor. The office carries significant influence, with the second-largest direct electoral mandate (8.6 million) of any politician in Europe. In contrast to his predecessor, Boris Johnson, Khan is a Brexit opponent, and is working with Prime Minister David Cameron to persuade Londoners to vote in favor of remaining in the EU. In his view, Brexit would jeopardize the capital’s growth.
Speedy Brexit out of the question, MiFID II would still stand
If the U.K. votes to leave the European Union, an exit wouldn’t be immediate. It could take two years for a withdrawal agreement to be finalized, in-line with Article 50 of the Lisbon Treaty governing the exit process, which hasn’t previously been invoked. The U.K. would have little, if any, say over severance terms drawn up by the remaining 27 member states, based on the EU’s timetable. In the interim, U.K.-based companies would still need to abide by EU regulations, including MiFID II, starting in 2018.
Life after Brexit may see limited access to EU financial markets
If the U.K. votes to leave the EU, financial-services companies based in the U.K. could lose unfettered access to 27 European markets, including Germany and France. To continue to do business in the bloc, they would need to comply with rules equivalent to those in place in the EU, such as the AIFMD and MiFID II. They would also have to cope with new practical and legal barriers. With no representation at EU level, the U.K. would have little, if any, influence over what those rules might be.
Britain isn’t Norway: Banks unlikely to thrive in Brexit plan B
If the U.K. abandons the EU and tries to join the the European Economic Area, its financial-services companies would still need to follow EU law. They could still access EU markets, but U.K. regulators would have no say over the design of rules that U.K. companies would be required to adhere to. EEA-member Norway has implemented about 75% of all EU rules. While the EEA model may work for Norway, which has Europe’s greatest energy reserves and the world’s largest sovereign-wealth fund, it may not suit the U.K.
$6.6 trillion U.K. asset-management industry besieged by Brexit
U.K.-based fund managers may struggle to serve European clients if Brexit becomes a reality. The companies could lose passporting rights, which allow them to sell mutual, hedge, private equity, retail investment and real estate funds freely across 30 EEA countries under the EU’s UCITS and AIFMD directives. Depending on the outcome of exit negotiations, investment managers may need to move to an EEA fund hub, such as Luxembourg or Dublin, for unfettered access. This would be both time consuming and costly.