Industry figures have warned asset managers must prepare for a no-deal Brexit, despite little certainty as to the ramifications of such an outcome, as the government urged EU authorities to reciprocate its efforts in damage limitation.
How likely is no-deal?
In his 23 August speech, Brexit secretary Dominic Raab said the government does not want, or expect, the UK to leave the EU with no deal, but was issuing the guidance as a precaution.
Raab said he had "every reason to believe" a "reciprocal" arrangement would be made with the EU, but "we will be ready if our expectations are not met".
He added the technical notices are a "sensible, measured and proportionate" approach to dealing with the possibility of no-deal.
However, the publication of the notices follows shortly after high-profile warnings - including those from secretary of state for international trade and Governor of the Bank of England Mark Carney - on the growing likelihood of the UK leaving the EU without a deal in March 2019.
Tim Cant, financial regulatory partner at law firm Ashurst, emphasised the UK government has "gone to great pains to ensure that the message is a no-deal Brexit is unlikely", and push the message that "the UK has done all it can to ensure stability and resilience in the case of a no deal".
"However," he said, "it takes two to tango and we are not sure whether our dancing partner will show up.
"The absence of EU action is likely to have significant and profound effects in an array of financial services areas, stretching from the ability to execute trades on a venue, to clearing derivatives and to settling securities."
His colleague, Lorraine Johnston, regulatory counsel at Ashurst, added: "Despite the message in the preamble that a no-deal Brexit remains 'unlikely' - which runs contrary to the European's view - the government has highlighted its existing work on the temporary permissions regime as the solution for EEA firms in the UK as a way to smooth the path for a no deal Brexit.
"But it has also suggested that legislation to combat the issue of contractual certainty will be brought into place, which provides some good news for industry.
"The most important message however is the precipitous nature of financial market access."
Remainers ‘clutching at their pearls'
Paul Mumford of Cavendish Asset Management said while the publication of the government's no-deal preparations "will have remainers and other commentators clutching at their pearls, thinking this in some way signals the likelihood of a no deal", he believes this is unlikely.
He explained: "Not having a plan in place for the worst outcome would be negligent and political suicide.
"It's also an important part of being able to get a good deal - Europe needs to know we are prepared whatever the outcome, the opposite would mean giving up a lot of leverage."
Mumford added that he believes while no-deal would be "sub-optimal in some way", it "will have clear upsides for swathes of the UK economy".
He said: "Sterling would inevitably take a big hit, but this would be a boon for many - particularly UK exporters, foreign investors who would be able to cherry pick quality companies, and FTSE 100 companies who in total derive around 70 per cent of their sales from overseas markets.
"There would also be some big winners in the oil, mining and tobacco sectors - for example BATS makes over 90% of its earnings outside the UK. With Brent crude at $74/barrel, shares in North Sea oil and gas companies should benefit whatever the outcome. And given that energy prices are in US dollars, these companies find themselves with a natural currency hedge."
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