Brexit negotiations have finally begun, 12 months after the UK’s momentous decision to leave the EU and precisely 500 days ahead of the trading bloc’s November 2018 deadline for an outline deal. But there are few other nice round numbers to contemplate.
The election has complicated things. It has brought us back to the debates of last year: are we headed for a hard Brexit or some kind of softer version?
As was the case last summer, hopes for the latter appear based on the wishful thinking that the EU will agree to the UK ending freedom of movement but retaining its membership of the single market. Once again, all the focus is on which domestic faction will win out, rather than what kind of deal would be acceptable to both the UK and the EU.
Amid this mess, those in the funds industry who have taken a ‘hope for the best, prepare for the worst’ approach will feel validated. Preparations remain in the early stages: a few staff relocated to European locations, establishing management companies on the continent, applying for licenses. But there is at least a clear basis on which to proceed if necessary.
For wealth managers with European clients, the situation is more complex. The route to dealing with these clients in the event that passporting rights are revoked has not yet been charted, and may not exist at all.
The situation at present is reminiscent of the way in which the industry has dealt with regulations like Mifid II or Priips. Last week’s referendum anniversary brought plenty of fund manager comment on market movements, but – as with all regulatory change – a wall of silence on how firms themselves are adjusting.
As lawmakers wrangle with the exact nature of the final UK/EU settlement, few practitioners are keen to commit to concrete, expensive solutions in the meantime.
After all, as with both Mifid and Priips, there is no guarantee an agreement will come into force on the originally scheduled date. Assuming talks don’t collapse entirely, my bet is there will be a sizeable transition period once Article 50’s two-year deadline expires in March 2019.
As Investment Adviser reported earlier this year, asset managers given an extra year to prepare for Mifid II are still at risk of missing the deadline when it comes to the likes of dealing commission arrangements. Despite the FCA’s efforts to gauge preparedness, the pathway towards preparing for Brexit may well follow a similar course: tinkering around the edges until the very last minute. Those looking for hints as to how peers will deal with the ‘new normal’ could yet be facing many years of uncertainty.
Dan Jones is editor of Investment Adviser