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Luuk Jacobs

Brexit preparation - time is running out

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Andy Milner

The "stay of execution" offered by a short extension that would potentially increase the chance of a no-deal Brexit is going to mean yet more cost incurred by companies in re-scheduling their no-deal Brexit plans.

 

Hopefully this won't be as impactful to our industry, by the manufacturers stockpiling or shutting down their production lines will have knock in effects to the overall economy.

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Luuk Jacobs

Every day a new "unexpected sage" in the Brexit soap. Nothing clear as to where we will be comes March 29. May now trying to get the public opinion behind here with her yesterdays speech, blaming basically everyone apart from herself (personal opinion) and trying to give a motherly impression. The EU saying we will not extend unless the agreement is accepted. Everyone else seeming to fall over themselves to say that it is all scandalous not realising they are part of it.

 

This evening the cards could be completely different again and with the planned march for a peoples vote this Saturday, things could turn out very different by Monday. A soap screenwriter could not have written this but it is currently the reality.

 

(International) Businesses have long switched off and taken their measurements, including especially in the industrial sector, by moving business away from the UK. The UK footsie is not an indicator of the industries sentiment as most of these companies have significant international exposure and the UK is apart of potentially being the head-office, not a reflection of their core business. The exchange rate neither seems to fluctuate materially with the Brexit Soap scenario, so any indicator to go by is lacking ..... lets go to the next episode !

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Andy Milner

The FCA has published a response to the ESMA paper on it's approach to MiFiD II and Benchmarking provisions in the result of a no-deal/no-transition Brexit.

 

WWW.FCA.ORG.UK

ESMA has published a statement clarifying its approach to aspects of the MiFID position limits regime, post-trade transparency requirements, derivatives trading obligation and benchmarks regulation if the UK...

 

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Andy Milner

Although it would be hard, the parliamentary arithmetic still has a possibility of falling in May's favour if she is able to bring her deal back for a final vote.

 

Although this is a bit out of date, this calculator can give you an idea of the different factions in parliament:

 

2500.jpg?width=1200&height=630&quality=8
WWW.THEGUARDIAN.COM

Use our simulator to see what happens when each of the various tribes chooses to back the prime minister, to reject her bill or to abstain. Can you assemble a parliamentary majority?

 

The fundamental problem with May's plan all along is that she's simultaneously trying to scare the Brexiteers with the notion that if they don't support her Brexit may not happen, while trying to scare remainers with the prospect of a no deal Brexit, and it's hard to do either effectively without undermining the other!

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Colin Ng

Very good read. Easy to follow and to the point. 

This sorry saga of brinkmanship has removed what little bargaining power we had. It is clear we need all EU states to agree to an extension - voting for it in parliament does it make it so.....

 

TM has to get round or persuade Bercow to let her have another vote first on the deal

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Andy Milner

Things are obviously moving very quickly at the moment (and ironically barely changing at the same time!), but here is a useful summary of the current position from the Chief Economist of Jaguar Land Rover who has been providing interesting commentary through-out this process:

 

Quote
  • It is likely the UK will get an extension to the negotiation period and therefore will NOT leave the EU on 29th March
  • It is likely that this extension will be a long one (e.g. 9 or more months)
  • It is likely that the UK parliament will in April agree the kind of future relationship with the EU that it wants
  • We will likely get clarity on the extension, its purpose and its duration, by Friday 22nd March
  • The situation is very fluid and nothing is certain apart from that without a change in the law (e.g. due to an extension) the UK will leave the EU on 29th March. 

 

 

0?e=1558569600&v=beta&t=WWSvHYxIxGwVFfWw
WWW.LINKEDIN.COM

It has been another long week in UK politics and, with a brief interlude in proceedings, now feels like a good time for a quick update on Brexit. You can read about the ins-and-outs of parliament's votes in the papers, so...
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Andy Milner

The main risk of a no-deal Brexit now seems to lay with the EU not granting an extension to article 50 - it would only take a single state to block the process. (However there are no clear candidates to do so, and the EU27 have stuck together very closely so far - precipitating a no-deal Brexit would be a sacrifice of Ireland and cause an almighty diplomatic fall-out).

 

There is also the fact that the UK has the right to unilaterally revoke the invocation of article 50 (as ruled by the ECJ last year) that should be a second line of defence - although the fact that the "no no deal brexit" vote only passed by 321 to 278 votes, I am now less sure that there would be a majority in the Commons to pass this.

 

Here is a really interesting (and detailed) document on the relationship of each member state with the UK:

https://www.instituteforgovernment.org.uk/sites/default/files/publications/IfG_views-eu-27-v5_WEB.pdf

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Luuk Jacobs

It looks like yesterday evening's vote has put everything even more in jeopardy. Yes the vote was NoNo to a No-deal but in the end it is not a binding vote. The saddest thing for me to see is that the political establishment is and has not been able to pull them selfs together to create unite to get an agreement that is best for the country. From the outset the whole process has been looked at from a black and white point of view without any shades of grey. Over time it has resulted in as many opinions almost as there are MPs. I believe that the hassling will continue up till the date of the 29th of March with still any outcome possible

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Colin Ng

@Andy Milner Couldn't agree more! Looking back at Ben's post from August last year, those 59% of firms who have started to prepare for a Hard Brexit last year must feel like they have done the right thing in light of current state of play. In the space of 6 months, the negotiations have gone from Hard/Soft Brexit to No deal/Delay Brexit. Cannot wait for the results of tonights vote! Less than an hour to go....

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Andy Milner

"A waste of two years" - is a quote from one analyst in the below article. Whatever your political persuasion, it's hard to disagree really.

 

Quote

 

“We are now merely weeks away from the Article 50 deadline, and it is critical that every effort is made to avoid a no-deal exit from the EU... Since the Brexit referendum, British savers have taken nearly £19bn out of UK equity funds, which reflects broader concerns about the strength of the UK economy. A no-deal Brexit will only serve to further dent investors’ confidence in the UK economy, and every effort must be made to avoid it.”

Chris Cummings, chief executive, Investment Association 

 

 

FN-AG531_FN_MAY_M_20190313031625.jpg
WWW.FNLONDON.COM

Reaction from UK finance as Theresa May fails to get her Brexit deal over the line at the second attempt

 

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Andy Milner

Unfortunately this has seemed inevitable for a while, as Theresa May's only leverage over Parliament is running the clock down to a threat of a no-deal Brexit. I still remain convinced that there are enough sane MPs (and enough sanity on the EU side) to ensure that that doesn't happen, making an extension almost a certainty.

 

If the negotiations are extended, there is still no clear way to resolve the current impasse, so I tend to agree with Juncker (?) who said that an extension period should be in years rather than months.

 

The impact of this on-going uncertainty on the economy can only be a negative thing however - although with the slowdown in Germany and elsewhere, it may be hard to untangle the impacts at a macro-economic level from broader influences.

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Eva Keogan

So here we are in February, with four weeks to go the clock is still ticking and there is very little to show for the time and energy put into managing Brexit and its outcomes - and latest is that we may need to delay - this is beginning to feel like a rerun of Y2k (for those that remember). Thoughts?

 

_105779796_1c9d9680-5da7-41bf-baaa-80236
WWW.BBC.CO.UK

Tory backbenchers propose a two-month postponement, as Theresa May prepares to meet EU leaders.

 

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Eva Keogan

There will be a lot going on from now until Christmas - just by looking at the Investment Week live blog on Brexit it is easy to see with six months on the clock there is a flurry of activity but May and Merkel are toughing it out without pulling any punches just quite yet - some good old fashioned political brinkmanship going on here and interesting points made here in The Guardian about key events in the next few weeks - so it's now wonder many are playing a waiting game and that itself could be seen as risk management?

3724.jpg?width=1200&height=630&quality=8
WWW.THEGUARDIAN.COM

Chancellor’s comments made to German finance chiefs as UK-EU negotiations face deadlock

 

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Luuk Jacobs

I am mainly surprised by the in point 1 mentioned 17% waiting till the political situation becomes clearer ...... more than 2 years after the referendum there is continued going left and right and I would wonder in the case of the 17% if they have a sufficient risk management in place.

Yes it might all come together by March 30, but the principle of good risk management is that if there is no clarity on a situation, you managing this by putting mitigating plans in place, not just waiting till the situation becomes clearer !!!!!

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Rory McMillan
1 hour ago, Ben Cole said:

Article in todays FT indicating the majority of Asset Managers are preparing for a hard Brexit. 

Interestingly it goes on to state that 89% of all AM's polled have a Brexit response plan, yet only 49% have already put those plans into action.

https://www.ft.com/content/66318f28-a229-11e8-85da-eeb7a9ce36e4

Those are pretty scary statistics... The lead time to implement a Brexit response plan, particularly if it considers the worst case 'no deal' scenario, will surely leave the 51% pretty tight for time between now and March? Not to mention the 11%...

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Ben Cole

Article in todays FT indicating the majority of Asset Managers are preparing for a hard Brexit. 

Interestingly it goes on to state that 89% of all AM's polled have a Brexit response plan, yet only 49% have already put those plans into action.

https://www.ft.com/content/66318f28-a229-11e8-85da-eeb7a9ce36e4

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Luuk Jacobs

I believe neither the EU nor the UK would, through Brexit, benefit from UK Asset Managers not being able to Manage at least existing European mandates. This would be a too big shock to the system and create an enormous risk to the performance of these mandates and clearly European investors would be hit hardest by it. Nevertheless the ESMA (EU regulator for the asset management industry) has clearly indicated that it is looking for better control and governance over these mandates (and specifically EU funds (Lux., Ireland). Ireland earlier this year and Luxembourg recently have started to incorporate this in their local legislation. This will initial mean a gradual move of risk and compliance responsibilities away from the UK into the EU with possibly over time fund managers.

For the EU it would be hard to defend that the UK is not equivalent directly after Brexit; the UK regulation is 100% aligned with the EU, whereas it would be hard to argue that the UK is not as equivalent as Mexico and Brazil or even the US. If the UK where to divert significantly away from the EU model after Brexit and over time than of course equivalence could be at risk.

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Jonathan Max

I’m sure there will be more fund managers launching products in the UK but….we are already seeing significant diversification strategies and companies broaden their reach. But @Ben Cole, I agree there isn't necessarily much of an incentive for the EU to make this easy for the UK

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Ben Cole

@Rory McMillan I very much doubt it, as you rightly point out there would be huge financial repercussions

 

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Rory McMillan

@Ben Cole do you think the EU would take such a harsh approach with the UK, given that it'd probably have financial repercussions for them as well? 

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Ben Cole

The biggest headache from a asset management perspective is in respect to passporting. i.e Asset managers across the EU rely on the passporting regime that enables them to sell services across the single market with ease. Once the UK leaves, it is not clear whether UK asset managers will find it as easy to access and service European investors.

 

For example, Italian pension schemes require their assets to be run by EU-based managers, and currently, firms in the EU can delegate the management of a fund to another jurisdiction i.e  London.  For the UK to continue to manage European mandates, it is vital that the EU grants ‘third-country equivalence’ after Brexit. Whilst the likes of some emerging markets such as Mexico and Brazil and included in the EU equivalence list, it’s not a given that the EU will include the UK, although that wouldn’t benefit anyone. – However for all we know the EU may wish to try and punish the UK

 

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Rory McMillan

You'd have thought so...

https://www.independent.co.uk/news/uk/politics/brexit-no-deal-uk-leave-eu-latvia-jeremy-hunt-meeting-foreign-minister-a8492281.html

There's one of these scaremongering type articles almost every day about the potential for damages with a no-deal brexit... Can anyone who knows a bit more about it suggest what the main repercussions (both within AM and more generally) to a no-deal brexit would be?

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Luuk Jacobs

The CSSF says existing Luxembourg-based companies “wishing to receive additional licences or substantially changing operational models to cope with Brexit-related aspects” should speed up their Brexit planning and “submit their applications […] as soon as possible”.

I am surprised that there are still companies that need to be reminded of this. Independent if you believe that Brexit will happen and if it will be a hard or soft Brexit, I would have thought any company by now would have done their risk assessment and would have put its plans in place ? 

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