Brexit: Should the United Kingdom remain a member of the European Union or leave the European Union?

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Legal Implications: Financial Services Regulation

• Leaving the EU could have significant implications for the financial services regulation in both the UK and the remaining members of the EU.
• The implications of BREXIT would be amplified for heavily regulated sectors such as financial services.
• Most current legislation governing financial institutions derives from EU law. If the UK were to leave the EU and EEA, the government would need to decide whether to retain the existing laws or to replace them with its own different rules.
• Many UK firms in the sector have benefited from a single EU regulatory framework, making it easier for firms from on Member State to operate in another. The EU financial services "passport" has been particularly important, allowing firms authorised in the UK to carry on business in another EEA state. Leaving the EU could result in restricted EU market access for UK institutions.
• The UK is the EU's largest financial centre, with many international banks using London to gain access to the Internal Markets and as a base from which to sell financial products and services across the region. This may be at risk if the UK loses access to the Internal Markets.
• However, there is disagreement on this. Capital Economics (independent forecaster) suggested in September 2015 that the competitive advantages of the UK financial services sector are enough to weather the break-up process and end in a stronger position than before. The City would only therefore be hurt in the short term. The competitive advantages are rooted in more than just easy access to the single market. Capital Economics also said an EU exit would enable the UK to broker trade deals with emerging market that could pay dividends for the financial services sector in the long run. However, TheCityUK, a trade body for the financial industry, said a departure would be disastrous for the sector. Meanwhile, a paper published by the Business for Britain group (of business leaders who campaign for changes to the terms of UK's EU membership) said the world of finance had "nothing to fear".