The people have spoken and we will enter soon a brave new world. After the initial volatility in markets has subsided and politicians have switched on the calming rhetoric we shall begin to see the wood for the trees.
The political dynamics of this result are likely to be profound. In any event, an Article 50 negotiation, triggering a two-year withdrawal period from the EU, is likely to have many twists and turns. The Article 50 timetable of two years was not chosen with practicality in mind; it was a hurry up call.
For financial services, with the exception of Mifid II which now has very unfortunate implementation timing, the likely changes seem more likely to come from investment conditions rather than supposed regulatory liberalisation.
If the regulatory regime is looked at top down, the standards are largely international. The Basel Convention covers banking and Basel III will be applied here. IOSCO covers investment management and IAIS covers insurance. The latter is likely to have an international capital standard by 2019 which looks similar to Solvency II. The UK will implement these standards one way or another.
Looking bottom up at EU directive law it is easy to underestimate the influence of the UK on the EU’s conduct risk framework. Mifid II is substantially the UK COBS requirements recycled with a modicum of gold plating. The UK policy intent will not change because we leave the EU and in the best case, we might see some modest reduction on Brussels’ propensity to gold plate. The only exception to this reality is AIFMD which has an element of continental London bashing to it. But even so, absent the EU, the UK probably would have extended its regime to cover hedge funds and similar structures.
The period ahead will be very challenging but when the smoke clears do not be surprised if less has changed than the Leave campaign appeared to promise.