27Jun

The UK electorate has voted to leave the European Union (EU), and the Prime Minister has announced he will leave office by October.

However, the first important thing to note is that, as of now, nothing has changed. The UK remains a member of the EU, and will not leave until two years after the Government invokes Article 50 of the Lisbon Treaty, at the earliest. The Prime Minister has said this Article will not be invoked until his successor is in place.

‘Business as usual’ was the common theme of a statement issued by the regulator, the Financial Conduct Authority (FCA), within hours of the result becoming known. The FCA said:

“Much financial regulation currently applicable in the UK derives from EU legislation. This regulation will remain applicable until any changes are made, which will be a matter for Government and Parliament.

Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.”

No authorised firm should be in any doubt that the need to comply with their obligations under EU regulations and directives remains unchanged. The largest piece of EU legislation affecting financial services is Part II of the Markets in Financial Instruments Directive (Mifid II), which is expected to come into force on January 3 2018. The Mortgage Credit Directive is already in force, but additional rules will apply to firms from March 21 2017 and from March 21 2019 as a result of this piece of European legislation. The Market Abuse Regulation comes into force in just a few days’ time, on July 3.

It is unclear at present whether the UK will seek to join the European Economic Area (EEA) (adopting a similar relationship with the EU to that of Norway and Iceland), or become a member of the European Free Trade Association (EFTA) (like Switzerland), or seek to negotiate all of its own trade deals. If the UK joins the EEA or the EFTA, then it is likely to have to continue to follow EU law in many areas.

Even if the UK adopts the ‘independent’ approach, and does not join either of the trading associations, then firms need to note that previous EU Directives have in effect been incorporated into UK law, and that the only way they will be repealed is if the UK Parliament votes to scrap them.

PwC financial services risk and regulation practice partner Laura Cox summarised the situation by saying:

“Firms will have to keep going. It feels like maybe you should put your pen down at this point but that is not the right answer. There are lots of options for where we might end up with an exit. We could go to a Norwegian model where we adopt some pieces of legislation and, in that case, Mifid II would be likely to be one of those [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][initiatives] that is so embedded in UK law that it would come into the UK virtually wholesale. It is not a time to stop progressing to becoming compliant with that.”

The compensation limits under the Financial Services Compensation Scheme remain unchanged for the present.

Share prices fell significantly following the vote, but the longer term effects are unclear. The FTSE 100 index fell by 11.5% at the start of trading on Friday June 24. It then bounced back by gradually recovering around two thirds of this sudden loss, but when the markets opened on Monday June 27, share prices were tumbling once again.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]