On 23 June 2016, the British population voted that the country should leave the European Union, with a small majority. On 29 March 2017, the British Prime Minister, Theresa May, notified in a letter to the European Council the United Kingdom’s intention to leave the European Union. This notification starts the official withdrawal process under Article 50 of the Treaty with a two-year period during which the EU and the UK will negotiate the terms of Brexit. Even though we very much regret this decision, we are determined to make the best of this outcome for the financial centres concerned and for Europe.
The European Union and UK financial markets are strongly interlinked. The UK financial market currently acts as a wholesale hub for other EU financial centres and accounts for almost 80 % of EU activity in financial market segments1).
It is expected that the negotiations between UK and EU will be challenging. EU law will continue to apply in the UK during the negotiation period, but uncertainty for market participants will continue until the terms of the UK’s withdrawal (including any transitional arrangements) are agreed.
UK-based financial firms will likely lose their existing EU passporting rights to conduct business with EU 27-based clients, if no transitional provisions or treaties are agreed between the UK and the EU that would maintain these rights.
Third-country rules, incorporated in EU financial regulations (e.g. MiFID II / MiFIR, EMIR, CSDR), are designed to provide access for non-EU firms to EU financial markets. However, third-country rules are not an exact substitute to the EU passport.
It is important that Europe remains competitive internationally while upholding financial stability. Therefore, deregulation (“race to the bottom”) and regulatory arbitrage (“cherry picking”) must be avoided.
On 23 June 2016, the UK voted to leave the European Union. The formal withdrawal process according to Article 50 of the Treaty on the European Union was triggered by the UK on 29 March 2017. The two-year period during which the EU and the UK will negotiate the terms of Brexit has started.
1) According to the FESE European Equity Market Report 2016 around 54 % of the European equity trading was executed in UK. The UK handles 77 % of euro-denominated derivatives transactions, according to the Bank for International Settlements data on over-the-counter trades. Around 78% of European FX trading, 74% of European interest rate derivatives trading and 50% of European fund management activities (by assets) take place in the UK.
Brexit: the highlighted parts of the value chain are affected