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BREXIT: London still key, but financial firms could reconsider how they are structured for European operations in light of Brexit vote, says expert


Financial firms could "reconsider how they are structured for European operations" as a result of the UK voting to leave the EU, an expert has said.

This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses and sign up to receive our 'What next?' checklist.

Financial services expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com, said London will remain an attractive location for financial firms to operate from, but that other financial centres in Europe could view the UK's decision to leave the EU as an opportunity to attract a greater share of financial services business.

"The vote to leave the EU means some financial firms could now reconsider how they are structured for European operations, as it is uncertain what arrangements might be agreed in place of the current 'passporting' arrangements that many London-based firms use to avoid the need for multiple authorisations across Europe," Ashby said.

"It seems likely that the UK will push to negotiate an equivalence regime to replace passporting when the UK's membership of the EU expires to allow UK-based firms to continue to access other national markets in the EU relatively easily. However, those negotiations will take place within broader talks over the terms of the deal confirming the UK's EU exit which are likely to take many months, and quite possibly years, to conclude," he said.

"Some UK-centred companies with business across Europe could look to relocate to other European financial centres such as Frankfurt, Paris or, in some cases, Dublin, if they view passporting rights as so central to their operations that they are not prepared to endure uncertainty over whether an equivalent regime would allow them to continue to use London as a base for Europe-wide activities. Those other financial centres may well view the UK's exit from the EU as an opportunity to increase their influence and it is conceivable this could complicate agreement on an equivalence regime," Ashby said.

"However, London is not just a major financial centre because it is a gateway to Europe through the UK's EU membership and associated passporting regime established by EU law. London is also an important centre for markets outside the EU and will continue to be so even with the UK leaving the union and so firms will not necessarily be looking to move their central hub from the City," he said.

Under EU rules the UK would leave the EU two years after it officially gives notification or earlier if both sides agreed. That notification is not being given immediately and there is no deadline for giving it. The UK will continue to be a member of the EU for that two year period, which once triggered can only be extended with the consent of all EU countries.

European Council president Donald Tusk said that there would be "no legal vacuum" in light of the UK's Brexit vote and that "until the United Kingdom formally leaves the European Union, EU law will continue to apply to and within the UK".

Ashby said: "From a regulatory perspective, we do not expect UK financial services regulation to suddenly deviate from that which currently applies throughout the EU. Much of the existing regulation is enshrined in UK law so any changes in approach will realistically come about gradually over a period of time."

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