Whatever the outcome of Brexit, decisions are being made that will change financial services forever.
The intense focus on how to leave the EU has diverted attention away from the sobering reality that the current phase of negotiations is just stage one of a process that could dominate most of the next decade.
Only once the UK has left can the negotiations on the future trading relationship start. This will be even tougher, as trade negotiations are notoriously complex. The EU’s decision-making processes will also be a huge additional hurdle.
The Withdrawal Agreement was negotiated under Article 50 of the EU Treaty. This only requires the EU to pass it under its qualified majority voting regime – where no one country has a veto – and get the support of the European Parliament.
However, once the UK leaves, the future trade relationship will be negotiated under articles 207 and 217, which require the unanimous agreement of all member states, their national parliaments and, where they exist, regional parliaments, too. This could prove very tricky. In 2016, the Walloon Parliament in Belgium almost sunk the EU-Canada trade deal, which had taken 10 years to set up.
That could affect financial services in many ways, not least as most EU trade would likely be under World Trade Organisation terms. These have large gaps when it comes to financial services. Without some softening, such as a transitional period of mutual recognition, it could be a bumpy ride.
Political ignorance about the impact on financial services has left firms with little option but to prepare for a potentially chaotic ‘no deal’, while hoping for something softer. This means making decisions on what must be serviced in the EU and where to base operations. Dublin and Luxembourg are the big winners but Paris and Frankfurt are pitching hard for UK firms to redomicile there.