Brexit : Four Months On…
In our previous news item, just before the UK Referendum, we were quite positive as to the outcome should the UK vote in favour of leaving. Wealth still needs managing, and will continue to be created, and spent, in all sorts of circumstances. We at Baccata have not seen any slowdown in work or a wish for clients to move geographically away from Jersey or indeed away from Europe. True, every financial index for the second quarter to 30th June, just after the Brexit vote, contains its own hiccup but four months on, the situation seems to us as follows:-
In the short term
It has become clear that the UK is wisely not prepared to trigger formal negotiations until a little more political balance is acquired and some of the plethora of questions raised by the referendum result are resolved. Theresa May has indicated that she intends to trigger Article 50 through the royal prerogative, but that this will not occur before the end of 2016. There has been some speculation that the conservative administration may be intent on delaying initiation of the process until the political landscape in the EU becomes clearer following the French and German national elections next year, so as to avoid a change of regime affecting negotiation progress in the relatively tight two year timespan granted by Article 50.
We at Baccata have not seen any slowdown in work or a wish for clients to move geographically away from Jersey or in deed away from Europe
This is to say nothing of resolving various internal issues, the most prescient of which would perhaps be the exit terms desired by the population. A key focus of the leave campaign was to establish greater control over immigration, and yet the consensus also appears to be in favour of attempting to retain access to the single market; two points that are at odds with the fundamental underpinnings of the EU. Before stepping up to the negotiation table it would seem prudent to take time to thoroughly work through such expectations, despite the urging of Donald Tusk.
As such there is reasonable scope for delay in proceedings before negotiation is even on the table, whereupon an extendable negotiation window is opened. Given the magnitude and precedence of agreeing such a complex egress, it does not appear excessively liberal to expect negotiations to take most of this window to conclude.
From this then it would seem likely that business operations will be able to continue as it has been for at least another two years, though perhaps suppressed in some sectors due to the dampening effect of uncertainty. Outfits that rely on EU mediated spheres are looking to, and have time to develop various contingencies looking forward.
From a Jersey-centric view the finance sector is relatively unconcerned if not optimistic about the opportunities such a schism provides.
In the medium term
The relationship of Jersey with the EU may shift character slightly. However the nature of the existing interaction between the two leaves Jersey with a large degree of freedom to legislate independently of protocol 3. Current arrangements for access to EU markets are negotiated under EU provisions for third country access, on the proviso that certain standards and regulations equivalent to relevant EU legislation are in place. Jersey institutes compliant legislation for the purpose of conforming to these third country access rules completely independently of its relationship with the UK. As such there is likely to be little alteration of policy due to derestriction.
There may be some alteration of client behaviour pending the clarification of the new UK-EU relationship, but Jersey’s stability and expertise place it in an excellent position to facilitate our clients with a calm, measured approach.
In the longer term
Jersey’s exact position in the global financial landscape does depend to some extent on the nature of the deal struck between the UK and EU, however the two share an interest in maintaining at least some semblance of a co-operative relationship, however reshaped. We expect the UK to maintain its position as the foremost jurisdiction for the financial sector, by virtue of its extensive expertise and robust infrastructure. In stark contrast to the exit campaigns fearful predictions about economic collapse, the impact of the vote has been moderate. For many of our clients it does continue to be simply business as usual.