The UK prime minister's speech in Florence on Friday was meant to clarify Britain's negotiating goals for its departure from the EU in March 2019 and reboot the Brexit talks, which have made little progress since they began in June. Did Theresa May achieve that and has she succeeded in reassuring businesses over some of the issues that were causing uncertainty?
Brexit impact on financial services contracts
To an extent yes. The lack of a transition period and end of passporting rights were some of the big worries for businesses and financial services, concerned at the prospect of facing a 'regulatory cliff edge' after March 2019. Earlier this month, a paper published by UK Finance and the Association for Financial Markets in Europe (AFME), Impact of Brexit on cross-border financial services contracts, emphasised the importance of transitional measures to lessen the impact of Brexit for businesses that buy and sell between the EU and the UK. The AFME said in a statement: “What, if anything, will replace these current rights to contract for such financial products and services between the EU and the UK remains unclear.”
The paper also put a figure of €1.3 trillion on the value of UK-based bank assets that are related to the cross-border provision of financial products and services (such as lending, foreign currency products, insurance and investment management) to a variety of customers ranging from governments and individuals to businesses of all sizes. Many of these financial products provide important risk management and funding for businesses, extending beyond the 2019 exit date. AFME states: “European and UK businesses are increasingly concerned about the potential impact on their existing contracts. The UK exit from the EU potentially creates significant uncertainty for these businesses, including with respect to the continuity of the contracts which support their funding, economic activity and risk management. Early action is required to provide the necessary clarity that these contracts will continue following the exit of the UK from the EU.”
'Cliff edge remains a real possibility'
Theresa May said in her speech on Friday that the government's negotiators will back a transitional period following March 2019, during which time Britain should stay in the EU's core institutions and the current relationship with the EU's markets would continue on current terms. The transition period could last “about two years” according to May, although she didn't give a fixed deadline. In this regard, the prime minister has provided some reassurance for businesses and service providers that have been asking for more clarity on a transition period. Whether this will be enough to boost business confidence remains to be seen. KPMG's head of Brexit, Karen Briggs, said in a statement that businesses shouldn't necessarily relax and assume that regulatory conditions will continue as they currently are for another three-and-a-half years. Briggs said: “There is a huge amount of preparation to be made at a national and individual business level. Both the public and private sector must make use of this potential window. All eyes will now turn to whether the EU views the prime minister’s proposals as sufficient to move the talks forward in October. Until both sides sign up to the proposals, cliff edge remains a real possibility.”
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