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Rathbone’s Smith on Brexit impact on financial services

Rathbone’s Smith on Brexit impact on financial services

Financial services faces the single biggest risk in the event of a Brexit, Edward Smith, asset allocation strategist for Rathbones.

Mr Smith, who earlier this year wrote a report seeking to dispel some of the myths around a potential Brexit, told Investment Adviser’s Ellie Duncan: “I think if we do vote to leave, the likelihood of being able to negotiate a good deal on financial services is perhaps not that high.

“This given we have a rather large trade surplus on our financial services trade with the EU, so if you want to negotiate a deal, that’s not a great starting point.”

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He said the direction of travel of regulation and legislation was a core risk. He said: “Lawyers and regulatory experts are unanimous the direction of travel is to make it harder and harder to do business in Europe from outside of its borders

“So if they impose more stringent regulation, that is a higher cost doing business from London, a potential hit to productivity and therefore a potential loss of competitiveness and a loss of trade back into the EU.”

When asked about models for the UK outside of the EU, such as Albania and Switzerland, Mr Smith said: “The Swiss model is not really a model - it is a highly complex and frequently problematic amalgam of about 100 technical accords.

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“Gove referenced Albania and the Balkans as they have access to the single market without having to accept the raft of EU law and regulation.

“But apart from the political gaffe of suggesting Britain becomes more like Albania, it’s basically different as Albania is champing at the bit to becoming a full member of the EU.”

He believed sterling had further to fall from its November 2015 highs but Rathbones believes it could settle at a level of 7.5 per cent to 12.5 per cent below “where we are today” if we voted to leave.

However, Mr Smith said this was mostly “because of what has happened to interest rate expectations”, but not the high double-digit drops that some commentators have predicted.

Nor does he see a high contagion risk of a raft of EU countries leaving, with the exception of perhaps Sweden and The Netherlands.