Just as the completion of Phase One of the Brexit negotiations bought hope of a deal, so too has the agreement in principle for a 21-month transition period, leading to the beginning of new arrangements on the 1st January 2021. My colleague Harry O’Connell and I agree that, as Christian Lee pointed out this week, Brexit is beginning to feel a little softer.
If this deal is ratified it will provide a period of change designed for the UK and EU and businesses within them, to make the necessary changes to their political and economic infrastructure.
So, the Government has saved us from a cliff-edge Brexit. Banks and financial markets institutions will have more than enough time to prepare for any loss of access to the EU.
While the announcement this week indicates the intention for a Transition Agreement to be legally binding, the reality is quite different. A transition relies entirely on the EU and UK being able to come to a Withdrawal Agreement and both to pass that agreement into law. As the negotiations have demonstrated so far, this really is easier said than done.
What if we assume the Transition Agreement does take place, what exactly does this mean?
- The UK will remain a rule-abiding member of the EU institutions (think Iceland, Luxembourg and Norway); maintain tariff free access to the Single Market and all the EUs additional free-trade agreements;
- the UK will have a legal obligation to abide by all EU rules, but it may not have a say in the creation of new ones and may have to implement new laws in this period;
- the UK will stay subscribed to all internal policy areas including the banking passports;
- the UK will be allowed to negotiate, agree and ratify free trade agreements with any other nation or bloc outside the EU.
While a positive step, let’s not say banks can shut up shop and wait it out. Brexit remains uncertain.
Just this week we’ve had prominent Brexit supporting MPs throwing fish into the Thames, the ECB reiterating the fact that the deadline for EU licences remains June 2018 and to top it all off BaFin has encouraged banks to continue preparing for a cliff edge in March 2019.
What does this mean? Our advice to clients is to
- keep momentum on your Brexit programme;
- focus on the time-consuming and complex matters;
- continue to apply conservative assumptions.
Because who can be sure that come March 2019 the UK will not be out on their own?