On June 23, the UK will vote on whether to remain part of the European Union (EU) or not. Understanding the impacts on my industry, asset management, will be important. In the shot term, market volatility may be very significant at the end of this week. This will be true regardless which way the vote goes. The markets do not like uncertainty. Both the Pound Sterling and the Euro are likely to weaken. Equity markets may drop as investors move to more stable investments such as Gold and US Treasury bonds.
In the long run, there are two main issues for asset managers: no longer being allowed passporting and the requirement of equivalence.
Many asset managers conduct business in Europe through a presence in London, this is called passporting. If passporting is no longer permitted, asset managers will have to conduct business directly from within the European Union. For companies that currently service EU countries from Switzerland via London, this will also no longer be permitted, since Switzerland is also not an EU member. These change will require significant infrastructure change in physical location, legal and corporate structure. There will be a need to relook at the entire organizational structure.
Equivalence requires that a non-EU country who want to do business in the wholesale asset manage business within the EU will have to show that their countries rules are at least as strict as EU rules. This could require significant additional regulatory requirements for asset managers.
Both of the issues will need a concentrated effort to resolve. Companies with a robust Enterprise Architecture program will have an advantage in organizing their response strategically, rather tactically dealing with each issues.
Excellent post. I really like that you had an especially timely news story to tie into the material this module. Do you think that the pound will have a fast or slow return to it's past high value? I had not even considered how having solid enterprise architecture would help address issues like this. Are you allowed to answer as to whether your organization has plans in place for which ever way the vote goes? I'm interested to see how the decision by Britain will impact countries within the EU who are already struggling.
ReplyDeleteHi Heather, sorry for the delayed post. I are still evaluating what happens with the Brexit. We are hoping that they are able to negotiate a soft leave, where they can continue to be part of the European trading zone, and still low immigration. A lot will depend on who becomes Prime Minister. Hopefully that will be Theresa May. With a soft departure, we may not have to make significant changes. Otherwise, we may have to focus more of our business directly within the EU. We have small offices in Luxembourg, Frankfurt, Paris and Madrid. These offices could easily become much more important. Ideally we will be able to keep as much operations in London as possible, because we have a great team there. Then there is the regulatory angle. We have been working towards the EU investment requirements, much like Dodd Frank in the US. There is still a lot to do, and now this many change too.
ReplyDeleteThe Brexit negotiations will tell us more.