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‘The Art of the No Deal: How Best to Navigate Brexit for Financial Services’, by Barnabas Reynolds

The Art of the No Deal: How Best to Navigate Brexit for Financial Services

Barnabas Reynolds

Tuesday 28th November 2017: For financial services, it’s time to act, deal or no deal. In Politeia’s new publication, a leading City lawyer sets out detailed proposals for best UK options.

Link to PDF: The Art of the No Deal: How Best to Navigate Brexit for Financial Services
Press Release

For the UK’s financial services, the Brexit goal is that businesses continue existing trade without friction or extra cost, and their trade grows both globally and with the EU. There are two ways to achieve this goal. The UK government and market participants must now prepare for each, says Barnabas Reynolds, the author of Politeia’s next study, The Art of the No Deal: How Best to Navigate Brexit for Financial Services.

Both options are as true now as when identified one year ago in A Blueprint for Brexit, when the talk for many was stuck in maintaining the passport.

The first option is to pursue free trade, on the basis of mutual recognition of laws and standards. The second is a ‘no deal’ outcome, preparations for which should also be pursued.

The first option, proposals for free trade on the basis of mutual recognition of laws and standards, has been addressed in detail in A Template for Enhanced Equivalence.

This new volume sets out the preparations for a no deal outcome and how they should simultaneously proceed. As Reynolds, who leads his City law firm’s global and EU financial regulatory and advisory practice, explains, there is less to fear from ‘no deal’, and much more to recommend it than many realise. But for it to work well the government must put the right legal framework in place. The prize will be that London retains the benefits it enjoys as a leading world financial centre, perhaps even greater because it will not be constantly subject to EU rule.

To achieve these goals, the UK government must take active steps now. In particular it should:

  • Work with businesses to help identify and implement ‘no move’ outcomes
  • Ensure that it, the US and other global regulators put the EU under watch, so as to identify and follow EU law and  call out politicised EU overreach and so minimise its practical effect
  • Identify unnecessary regulatory red tape in UK law to remove on a no deal Brexit
  • Consider tax incentives on a no deal Brexit to cushion the transition

These steps could lead to many benefits from a no deal outcome, and would provide an inexpensive and attractive basis for business. The author explains these and adds that in a no deal outcome for financial services, mutual recognition businesses would not need to relocate to an EU centre to serve EU customers. In fact legal structures and approaches can be adopted to avoid expensive relocations. Reynolds also details the ways in which this can be done, taking advantage of the synergies and savings in doing business in the UK’s global financial centre. Such benefits outweigh the advantages of the passport, which is not needed for most cross border transactions, and for which alternative arrangements can be substituted without friction.

In a checklist addressed to different sorts of business – investment banking, commercial banking, derivatives, asset management, insurance and infrastructure – he explains the steps that they should take now to avoid moving, something they are keen to avoid. These will allow them to prepare for the different contingencies and to provide to EU customers the benefits of the cheapest possible access to capital from the global financial centre in this timezone. These include:

  • Maximise use of international law protections from any cliff edge
  • Utilise reverse solicitation, the insurance trust, agency, indirect clearing, customers’ UK subsidiaries and other structures which avoid the necessity for moves
  • Treat the EU like any other jurisdiction around the world in doing business there
  • Have confidence in and place reliance upon the rule of law

The advantages for the sector of either course would be significant. Leaving behind EU civil law will help the sector as the UK returns to its common law tradition. Not only do the principles of UK law support competition, freedom and markets, but they are the basis for the sector’s historic success and suit the UK’s way of doing business.

Reynolds concludes that businesses can take steps to ensure they can continue servicing financial business across the EU from London. And they can press the UK Government to prepare the ground needed to reap the benefits of new-found freedom. The UK, freed from EU rulebook, can and should move swiftly towards a more business-friendly regulation and tax regime.

Barnabas Reynolds

Barnabas Reynolds is a partner at Shearman & Sterling LLP and Global Head of the Financial Services Industry Group. He is the author of Restoring UK Law: Freeing the UK’s Global Financial Market, (2021) and co-author of The Lawyers Advise: UK-EU Trade and Cooperation Agreement – Unfinished Business? (2021).

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