Big Brexit Week: The Beginning of the End, or the End of the Beginning?

As the Brexit sands of time tick down, we enter perhaps the most crucial week in the process thus far, and agreement on withdrawal plans between the EU and UK remains elusive. Many expect a delay is the most likely option at this point, but what happens next remains up in the air. There are a series of UK parliamentary votes set out for this week which will dictate Brexit’s conclusion.

Most recognize the UK Houses of Parliament for its dramatic gothic exterior and the world famous Big Ben clock that adorns its front, but few know the inner workings within this historic building. This week, however, the eyes of the world will be on Westminster as a new round of Brexit votes will elevate the importance of this revered landmark.

The so-called meaningful vote on Prime Minister May’s Brexit deal in January held legally binding weight because parliament demanded said vote. That vote decided whether parliament was willing to agree to the terms of the negotiated Withdrawal Agreement the UK team had negotiated with their EU counterparts. Previously, the government, for the first time in its history, was found in contempt of parliament for not releasing its full legal advice received on Brexit and was subsequently forced under rule of law to produce the legal advice which it had wanted to keep confidential. With just 18 days left until the UK is due to leave the EU, time really has run out on the debate phase and a firm decision on leave, stay, or delay needs to happen now.

Here are the possible scenarios:

The Greatest Show

The Brexit political battle continues to play out in the historic (slightly crumbling) Gothic palace that has defined British politics for almost a century. The UK’s House of Commons is over 800 years old. It has survived gunpowder plots, many wars, and has acted as a foundation stone for modern global democracy. However, it has rarely dealt with an issue as divisive, controversial, or complex as Brexit and this week parliament has huge decisions to make, and scant time to make them.

On Tuesday, when members of parliament gather for the first vote in the likely sequence of three votes throughout the week, they will follow an age-old process of choosing to walk down one of two wood paneled corridors: to the left to vote “aye” and to the right to vote “no.” These votes are formally called “divisions.” The process is high on pomp and ceremony and makes for dramatic television, but it is also serious business with huge consequence. The decisions of each individual member of parliament will weigh heavily on those responsible this week. Brexit is unique in that the parliament is ultimately deciding the future state of the UK as a nation and an economy.

Division!

Tomorrow, UK Prime Minister Theresa May will once more look for parliament to approve her withdrawal deal. Without securing legally binding additional assurances from the EU on the Northern Ireland backstop, it’s likely they will reject that deal as well. As a reminder, the backstop refers to an insurance policy of last resort to ensure an open border remains in place. Northern Ireland is part of the UK, while the Republic of Ireland is part of the EU. If the UK leaves the EU without a deal, thus leaving the customs union and EU single market, it could create a hard border. The UK parliament is seeking alternative arrangements to avoid that.

If her deal is rejected, on Wednesday, Prime Minister May will table a vote asking whether parliament wishes to leave the EU without a deal. Most see a no-deal Brexit as both divisive and disruptive to UK society. That scenario also remains unlikely.

With the current deal and a no-deal Brexit off the table, we would move onto a Thursday vote to ask if parliament wishes to delay Brexit. This has now become the most likely outcome. However, a delay might open a Pandora’s box of political outcomes ranging from length of delay, renegotiation with the EU, a second referendum, and even ultimately a retraction of Article 50 (cancelling Brexit).

So, on Tuesday, when Speaker John Bercow shouts “Division! Clear the Chamber” and bells ring across parliament, he will set in motion a series of events which will ultimately dictate what happens next. This all means it is possible by the end of this week we know whether it’s all systems go on March 29 or if the House of Commons is beginning to take the first step towards reversing Brexit.

What does this mean for asset managers?

By the end of the week, asset managers will finally have more clarity about the conclusion of Brexit or at least have a firmer timeline on its conclusion. We have previously spoken to the impacts of a no-deal Brexit, but a delayed Brexit is also possible. The possibility of a second referendum or even no Brexit at all have now become more likely. While continuity plans have been affected for many aspects of financial services and asset management, there are also areas of uncertainty such as cross border derivative contracts and temporary regulatory equivalencies that still need longer term solutions. All of these aspects will be influenced by the outcomes of the political votes this week. It’s often said that the only certainty is uncertainty. With Brexit, this has been the case since the referendum vote nearly three years ago. But we, alongside most global asset managers, will follow closely to the thrilling conclusion of this unprecedented political saga.