Since the financial and sovereign debt crisis that began in 2007 and started to abate only in 2013, the United Kingdom’s position in the European Union has gone to the top of the political agenda. The UK now faces the possibility of a referendum on membership of the EU.
The result of such a vote would have profound effects on the UK for decades to come. With that in mind, it is important to understand the legal nature of the UK’s current position and the strength of the case for the alternatives.
This paper from Baker & McKenzie examines those questions from a financial services perspective, and its main conclusions are below.
1. T he common feature of the five scenarios which see the UK leave the EU is the risk of damage to UK financial services through uncertainty, reduced market access and loss of influence
• Access to the EU’s Internal Market in financial services for non EU-member states under the EEA Agreement is fractured and increasingly fraught. Membership of EEA-EFTA would not guarantee access to the EU’s Internal Market in financial services.
• If the UK were to leave the EU for the EEA/EFTA, the UK would maintain access to the EU’s Internal
Market, but would lose all formal legal influence over EU legislation while still having to implement the
bulk of it. There would be a material risk that the UK would have to implement EU rules that ignored or
even damaged UK interests where otherwise the UK would have had a vote or possibly veto.
2. E U regulation is complex but the reality is that the UK wields very significant influence
• W ithin the EU, complex developments such as banking union could have an impact on how the
Internal Market operates. It is crucial that the new structures work well together and do not undermine the integrity of the Internal Market.
• M ore often than not, the UK is successful in getting what it wants in relation to financial services. The
City as it exists today functions as a market place of firms from across the EU and outside. Key aspects
of EU financial services law are modelled on those of the UK, such as large parts of the Markets in
Financial Instruments Directive (MiFID) and the Market Abuse Directive.
• T his is made possible by the framework of Internal Market legislation. As a member of the EU, the UK,
backed by its expertise in financial services, is in a position to sustain its influence on the framework
provided it is seen as committed to it. To abandon this for some untried, unknown and unpredictable
alternative would carry very significant risks.
• It is of paramount importance that the UK gains and keeps the means to increase regulatory convergence,
preserve market access and promote the UK’s interests in global fora.
3. T he UK needs to continue to make the case for reform of the EU. Harmonisation will not always be the best answer
• T he Internal Market in financial services represents a tremendous achievement, especially in the context
of passporting and the ability for firms to easily access a market of 28 member states and over 500 million consumers. There is more to be done for the Internal Market in financial services to ensure that it
is effective for euro area and non-euro area countries alike.
• A blend of mutual recognition and harmonisation has been able to cater for difficult and sometimes
contentious policy areas such as financial services, where products can be complex and the need for
consumer and investor protection is high but the EU must bear in mind that harmonisation will not always
the best answer.
Read more at Clifford Chance and download the paper here