Brexit: Pursued by a Bear - Investment community narrowly says remain in the EU

Brexit: Pursued by a Bear – Monday 16 May

The investment community voted to remain in the EU following a passionate discussion at the ‘Brexit: Pursued by a Bear’ debate chaired and sponsored by law firm Howard Kennedy.

In an initial vote before the debate, 56 per cent of attending delegates, drawn from the London investment community, voted to remain with 44 per cent wishing to leave. In the show of hands at the end, this margin had closed considerably.

The debate, held on Monday 16 May at the Merchant Taylors’ Hall in the heart of the City of London, chaired by Howard Kennedy partner Mark Stephens, was co-sponsored by Peterhouse Corporate Finance and accountants Welbeck Associates.

The Brexit: Pursued by a Bear debate cast much-needed light on the arguments being played out in the media, homes and businesses across the UK, with economic stability and trading strengths playing against loss of sovereignty and control over our borders. There was, however, common ground in both camps, that Brexit would be very likely to depress UK stock markets and the Pound (the disagreement being for how long).

Arguing to leave were Lord Howard Emerson Flight, Chairman of private equity fund Flight & Partners, and Zak Mir of ZaksTraderCafe.

Arguing to stay was Sir Vince Cable, Economist and former Business Secretary and Sebastian Mallaby, a senior fellow for international economics at the Council on Foreign Relations.

The panel also included Gervais Williams, managing director of investment fund management company Miton Group plc, who started and ended the evening undecided.

The arguments

Lord Flight, leading the ‘leave’ argument, presented a compelling case asking delegates to support UK entrepreneurs and small businesses – 85 per cent of whom do business only in the UK.

Sir Vince Cable, leading the ‘remain’ argument, reminded delegates that the Single Market was not the creation of faceless Brussels bureaucrats, but the result of a Conservative government under Margaret Thatcher. “Our liberalised economy,” he said, “is not ham-strung by EU regulation” and that any separation, like a divorce, will be “messy”.

For the first time, the question of a “Neverendum” was raised, where neither side wins convincingly or with sufficient level of voter turn-out to put the debate to bed once and for all. Doing so, Sir Vince Cable suggested, left the door open to a further referendum if Remain won, but unconvincingly.

Zak Mir, in support of Lord Flight and the ‘leave’ camp, argued that the referendum is as much about the future of the Conservative Party as it is about our future in Europe.

And in support of Dr Cable and the ‘remain’ camp, Sebastian Mallaby suggested that the facts dispelled four common myths peddled by the official ‘Vote Leave’ campaign:

  • Myth 1 – The EU costs the UK £350m each week. This figure does not take into account the rebate secured by the Thatcher government, argued Mallaby.
  • Myth 2 – The EU is expensive in terms of regulation. Not so, said Mallaby, as the benefits of these regulations are not taken into account.
  • Myth 3 – The EU doesn’t boost trade. Mallaby argued that the free-trade agreement has been of enormous benefit for UK PLC, and moreover, it was frankly inconceivable that a free trade agreement cannot be better than no such agreement.
  • Myth 4 – The UK cannot afford the burden of excessive immigration. Again, not so, says Mallaby. Eighty per cent of immigrants from the EU are in work, paying taxes and contributing to the UK.

How the EU influences financial services regulation

UK financial regulation is a mix of wholly domestic rules, rules introduced to give effect to EU Directives and Regulations, and rules introduced to give effect to obligations derived from other non-EU sources.

Brexit would require a comprehensive reappraisal of UK financial regulation. The entire FCA and PRA Handbooks would need to be recast, and the Financial Services & Markets Act 2000 and a considerable number of statutory instruments would have to be rewritten completely. The main issues will be:

  • determining whether relevant EU-driven provisions should be retained;
  • if so, creating an anchorage for them in UK law and regulation; and
  • if not, creating a replacement system that fills all of the resultant gaps.

The current system has evolved over close to 30 years, absorbing pieces of EU legislation along the way. It could take a very long time to review it, propose and consult on changes and implement those changes. Incidentally, the same is true across the entirety of UK legislation, and it is a matter for some concern that the sheer scale and the likely heavy cost of this process is not something that has featured significantly in the course of the Brexit/Remain dialogue so far.

The centrality of the UK to EU financial markets requires a system which is largely harmonised to EU standards. But Brexit means that the UK’s current position of significant influence in the development of EU law-making in this area would be substantially lost.

It is worth emphasising that increasingly globalised standards apply to financial regulation. Bank capital is regulated by the Basel Committee (not the EU). High-level standards for market stability are determined at the G20 level, and increasingly the taxation of investments will fall to be regulated by global international treaties.

The likely commercial consequences of Brexit are also relevant. If, for example, major financial institutions re-domicile to other EU Member States, leaving substantial group operations in the UK that answer to head offices in say France or Germany, the latter will still comply with EU laws and regulations, largely driving their UK group operations to comply as well. But there will inevitably be a drain away from the UK of significant employment opportunities and a return to countries of origin of many people who have come to the UK to populate the financial sector and contribute significantly to the UK economy and tax system.

The contrary arguments which one hears include the premise that London is simply too big to fall away as a leading financial centre, whatever happens, and that the EU Single Market has been conspicuously less successful in harmonising free movement of services than of goods – so far at least. More to the point, institutions in Europe that face and utilise the London markets will have every interest in supporting a post-Brexit settlement that sustains and continues these relationships. All of this is in the realms of some speculation, however.

The debate can be followed on Twitter at #brexitbullorbear and a live feed of the event can be found on Zak Mir’s facebook page.


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About Howard Kennedy

Howard Kennedy has 53 partners and numbers 350 people in total and works alongside national and international clients across many disciplines, including banking, corporate and commercial, family, finance, employment, dispute resolution, intellectual property, private client, real estate and tax. Howard Kennedy has particular focus on the Financial Services, Media and Technology, Real Estate, Retail and Leisure, Sports Individuals sectors.


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