It’s more than two months now since the UK’s historic vote was taken to leave the European membership. The referendum asked a straightforward question and produced a definitive result – at least on paper. The reality is that the definitive answer has, in many people’s eyes, resulted in the onset of uncertainty around Brexit. Or has it?
Just this week, at the G20 Summit in Toyko, the Japanese Government issued what the news commentators portrayed as “an unprecedented warning to the UK” about the potential consequences of an EU exit. In particular, in a 15-page report, the government warned that if Japanese financial institutions are “unable to maintain the single passport obtained in the UK” they would have to consider relocating their operations to other EU countries.
They also warned that other Japanese businesses in the UK might also decide to relocate to continental Europe if the UK’s Brexit negotiations with the EU do not maintain free movement of people and products.
In the media, this dire warning serves to add to the narrative of uncertainty that is being created. In reality, for many in the City, the report from the Japanese Government serves merely to underline what we already know – and indeed knew before the historic vote and also knew would largely not be affected by the vote, whichever way it went.
Financially, we already live in a global trading world. And what’s more, the rules by which those trades are undertaken, are harmonising globally. In Europe, the EU’s latest initiative in this space is called MiFiD II. It’s a set of regulations that update the existing MiFiD rules as they apply to trades. They exist to protect investors and ensure transparency in trading. One recent estimate said more than 7000 firms and 3 million users would be covered by the rules.
And the fact is that any financial organisation, no matter how large or small, that wants to operate and trade in Europe – whether that’s in the futures market, stocks and shares, investment portfolios, derivatives, unit trusts, pension funds or any other financial sector you care to mention – will have to sign up to and demonstrate compliance with the MiFiD II rules and regulations when they come into force next year.
And trust me – regardless of the Brexit vote, this is EU legislation that the UK financial services sector will adopt. Compliance with MiFiD II, will also ensure harmonisation with the similar legislation being introduced in the US known as the Dodd Frank regulations.
Britain may be island – but it has always been a trading one. It is from that heritage that the City of London rose to become one of the most important financial trading centres in the world. In many ways, the City of London set the rules for financial trading; and indeed – when it comes to the recording of financial traders’ fixed and mobile phone conversations and communications- the MiFiD II regulations owe a very large tip of the hat to the rules first introduced by the UK’s Financial Conduct Authority back in 2012.
But MiFiD II goes further than existing UK rules. And the UK will not stand aside and be an island in the global financial market. Brexit may change many things, but it will not change that and the institutions of the City of London are now racing against the clock to deliver full compliance and manage their financial risk to the highest possible global standards. In a world of Brexit speculation, that is one thing of which you can be certain.