This article was written by Yael Warman, Content Manager at Leverate.
A lot has been said in various financial publications about the effects a potential exit of Britain from the European Union would have on market volatility. However, the effects of Brexit go well beyond currency fluctuation and even well beyond the financial market.
The way in which people travel freely through Europe would be challenged as would cross-border collaboration on issues such as migration and climate control, for example.
The consequences brought on by a Brexit would vary depending on the terms by which Britain exits the EU and what kind of trade agreements stay in place, all of which would be negotiated after the vote.
Although changes regarding trade agreements would not be implemented immediately (Article 50 of the Lisbon Treaty governing the exit process of a member from the EU calls for the remaining members to finalize a withdrawal agreement stating the severance terms, a process which can take as long as two years) various industries will have to begin preparing for the possible ripple effects soon after the vote is cast.
As far as the forex industry is concerned, once a few days of volatility cool off, if the results of the referendum call for an exit of Britain from the EU, as the process of withdrawal begins to take place, UK-based companies will still need to abide by regulations set forth by the European Union, including those stipulated by MiFID II, until final withdrawal.
The FX Global Code – Is Self-Regulation the Future of the Industry?Go to article >>
As a best case scenario, in the event the people of Britain vote for Brexit, trade agreements would remain in effect making the FCA license still valid throughout Europe and vice versa. As a second best case scenario, agreements similar to those existing in the gaming industry would be established.
The Isle of Man and Alderney have become reputable jurisdictions in gaming and although not part of the EU, licences issued by these two jurisdictions have reciprocity throughout several European countries.
If what is being considered by many financial experts as the most important geopolitical event of the last 4 decades fails to leave trade agreements in place, life after Brexit will limit U.K brokerages from doing business in the rest of Europe as well as EU regulated brokerages from targeting traders residing in the U.K.
We have seen an increasing challenge for brokerages in terms of regulation, as regulatory bodies become stricter throughout Europe and Brexit would mean one more challenge for both the U.K and the remaining 27 members of the EU.
U.K brokerages that currently see a bulk of their business generated in France and Germany would have to set up shop within the EU, with a likely location being the welcoming coast of Cyprus, currently home to over two hundred brokerages.
As welcoming as Cyprus might be however, being out of the EU would allow the U.K little, if any, influence over the way in which the EU regulates its financial sector. Another challenge for brokerages would be the additional costs involved in establishing offices in the EU, a requirement for licensing, as well as additional capital requirements.
For now though, keep calm and carry on.