The EU referendum debate looms large as David Cameron attempts to persuade the British public that the United Kingdom is better placed in continuing its membership with the European Union. After many years of heavy regulatory burden and an immigration issue that has escalated and shows no sign of a resolution, does Britain need the EU as much as the EU needs Britain? Last week I listened to a webinar run by Herbert Smith Freehills (HSF) which considered the topic of a Brexit, with the public referendum scheduled for the June 23rd and the implications for leaving European Union for Financial Services Regulation. The UK’s continued participation in Europe after four decades in the bloc has seen a plethora of parties pushing its agenda to leave or remain, seldom has there been such indecision.
Britain has the fifth largest economy in the world and is the fourth largest military power. We play a leading role in international affairs as a prominent member of the G7 one of five permanent seat-holders on the UN Security Council. Britain has the largest share of cross border bank lending globally, the second largest Asset Management industry and the third largest insurance industry. As such, of the 358 global businesses headquartered in Europe, only 80 are located outside of the UK. Our Financial Services sector accounts for almost a quarter of the EU’s financial income and 40% of EU Financial Services exports. This gives rise to the question, while there will undoubtedly be a period of uncertainty as new treaties and trade agreements are negotiated, are we well positioned to thrive once free of the shackles of the European Union?
So what are our alternatives? Should Britain vote to leave, a two year Lisbon Treaty would ensue as we negotiate our (br)exit. As highlighted in the HSF webinar, there are a few obvious routes similar to Norway and Switzerland – who incidentally are included in the top 10 wealthiest nations on Earth – such as joining the European Economic Area (EEA) or European Free Trade Association (ETFA), but none of these routes would cure our immigration crisis and are not seen as particularly viable options as our economy and population differ vastly to the current members.
The Financial Services sector has seen a seismic shift since the financial crisis, leading to severe pressure and workload from the European Commission to implement a raft of regulatory change and new legislation. As a result, the Legal and Compliance professions have seen a huge boom, particularly in compliance – a function previously viewed as a back office afterthought now thrust in to the mainstream media and to the top of any board’s agenda. Should we leave the EU, how would these areas be affected again?
As discussed in the HSF presentation, the UK would continue to take part in the European debate for future regulation albeit with reduced authority and persuasion having decided to leave the EU. We have seen significant growth in areas such as government affairs, EU Policy and lobbying, so what price, if any, will these areas have to pay as a result of a vote to leave?
From our discussions with senior figures in banking and private practice, the general consensus is that a vote to leave would have a huge detrimental effect on the UK economy. Indeed of the 500+ participants of the presentation, 80% voted to stay. High level strategic meetings are taking place now to discuss these issues, but of the 278 global businesses currently located in the UK, commentators fear a mass migration of business out of Britain should we leave the EU. Two thirds of the participants felt their current organisation would stay, which leaves a large number considering relocating. How would this affect our UK economy? Our time zone, language, sophisticated legal system, and high calibre workforce has allowed the country to flourish but that may not be enough to entice global institutions if exit negotiations stagnate or stall.
As you can see, there is much to consider and this review only scratches the surface. Outside of the Financial Services sector, we cannot ignore the underlying political debates currently dominating public consciousness. With immigration issues considered to have become the main argument, and the rise in prominence of minority political parties such as UKIP, this is not just an economic issue but a socio-economic problem. Would leaving the EU solve our immigration issue? Is the nation equipped with all the right facts and information to make the most informed decision come June 23rd? The countdown has begun to what could be the one of the most important decisions in our country’s recent history and only time will tell whether it was the right one.