What’s the update?
Two UK senior cabinet ministers (and a raft of other leaders) resigned today leaving Prime Minister Theresa May’s Brexit plan in jeopardy. Prime Minister May had already faced challenges with her Brexit deal, and today’s resignations deepen a crisis that has been brewing for months. Here, we outline what the resignations mean for Brexit and how the impact may be felt in financial services.
Why/how does this impact Brexit?
1. Failed Withdrawal Bill – Cabinet resignations suggest that those ex-ministers will not vote in favor of the deal. We already expect about 9% of the House will vote against the bill making it unlikely it can move forward to the House of Lords.
2. Prime Minster May could be forced to resign – In order for the UK Prime Minister to be forced out of power, it would take 48 Conservative lawmakers to secure a vote of no confidence. So far, we know that 42 have already been submitted.
3. Hung Parliament – If May resigns, it would likely trigger a snap election, contested leadership contest, and/or a hung parliament. That would make it impossible to vote the Withdrawal Bill through the two houses and add it to the statue book in time for the deadline of March 29.
4. Referendum – The recent resignations combined with any of the above scenarios will likely force a second referendum. In that event, it’s unclear whether people would vote in favor of Brexit given the second chance.
Can Brexit be stopped?
Yes and no. Article 50 has already been triggered in writing. The author of Article 50 stated that it can be unilaterally triggered and can be unilaterally reversed. This has not yet been tested in the courts. On 29 March the EU Commission stated that ‘notification is a point of no return’ meaning the Brexit breakup will most likely continue to unfold.
Can Brexit be slowed?
Yes. This is the most likely scenario. Whilst the UK is potentially in the midst of leadership elections, a hung parliament, snap elections, and two referendums, it is likely that the EU will extend the transition period and we will see another two or three-year delay.
We recently posted details of the reported deal on ‘equivalence’ for financial services. Despite the agreed deal with the EU (which was announced Wednesday), there is no further detail on a potential deal for financial services firms to have continued access to the EU markets after Brexit. At the time, The Times said, “under the services deal, the EU would guarantee UK companies access to EU markets as long as British financial regulation remained broadly aligned with that of Europe,” but some leaders have said that is not yet set it stone.
There is a truism in our industry that applies to Brexit: uncertainty is the only certainty there is. For global asset managers, today’s developments add a whole lot of uncertainty to the equation. So, what are global asset managers and other market participants doing? It appears, for now, they’re taking it in stride and preparing for a “no-deal.” Many are even creating new legal entities and re-locating personnel. But as we’ve said before, and I’m sure we’ll say again, the situation is evolving.