The referendum has produced a knife-edge result showing a starkly divided UK. The vote Leave means not just Brexit but also a real risk of the UK breaking up, with pressure for another vote on Scottish independence so that Scotland can remain in the EU.
This is a double whammy of uncertainty. But it could get worse. France and Germany have elections coming up and if the UK decision is a catalyst for change in those countries too the negotiations over the terms of the UK’s exit could be with an EU that is starting to disintegrate.
At present the last thing worrying firms is the consequence for regulation.
There will likely be months of turmoil on the currency and stock markets as the consequences of the Leave decision are worked through and the priority for firms will be to hold the hands of clients through the difficult period ahead. Longer term, however, the decision is going to have significant consequences for regulation.
If the FCA, PRA and the Treasury have been doing their jobs properly they should already have secretly trawled through the legislation, as a contingency measure, to identify how different regulatory requirements are affected by the decision and whether, after exit, the UK retains, modifies or ditches them.
The UK has frequently led the reform of EU financial services legislation so anyone expecting a bonfire of the rules may be disappointed.
It is likely therefore that a significant amount of legislation will remain though not necessarily in the same form or degree. The position also depends, however, on what sort of relationship the UK has with the EU.
If it’s a Norway type relationship the UK will benefit from passporting but in return will have to abide by EU measures. If it is some other form of relationship the UK could have the freedom to determine it’s own financial services regulation.
What is needed urgently from the regulators is a decision on what firms should be doing now. It is not clear when the starting gun will be fired on the exit negotiations but when it is there will be just two years before the UK exits.
The sensible decision would be for the regulators to call an immediate halt to any regulatory changes. This includes such things as Mifid II where, despite the extension of the timetable to 2018, there is still much firms need to do against an ambitious timetable and it may all be for nothing if the result of the Brexit negotiations is for some or all of Mifid II to be ditched by the UK.
More importantly there must be a halt to non-EU policy initiatives and I include in this the Financial Advice Market Review.
What firms do not need at present is to be diverted from the crisis management necessitated by Brexit and to be asked instead to consider bright ideas from the regulators – whether that is the FCA, CMA, or the Treasury – because some organisations or individuals want to make a name for themselves.
David Severn is a consultant, former Aifa director general and former FSA head of retail policy