Brexit: potential impact on funds and practical steps
6 July 2016
Industries: Financial Institutions
Services: Banking Transactional, Financial Services
The news that the UK has voted to leave the European Union (EU) has begun to sink in and it is time to start taking practical steps to address the issues facing your business and engaging with contingency planning. Brexit, if and when it happens, will affect funds, managers and investors both in the UK and the EU and the impact on the funds industry has the potential to be significant.
The terms upon which the UK might leave the EU are currently unclear and will depend on the trading terms which the UK is able to negotiate with the EU and/or the rest of the world. For example, it is not clear if the UK, like Norway, will be a member of the European Economic Area (EEA), will have a trade arrangement with the EU similar to Switzerland or will have a different arrangement with the EU.
Business as usual until Brexit?
EU laws and regulations currently in place or implemented before Brexit takes effect will still be binding in the UK until Brexit, which is unlikely to occur until late 2018 at the earliest. In the longer term, Brexit will mean an overhaul of the legal and regulatory environment in which funds and their managers operate. However, the most likely short term effects of the result of the Brexit referendum on funds will be economic, rather than legal or regulatory.
Changes in the value of sterling, inflation, interest rates, yields on gilts and corporate bonds, property values, rises and falls in the stock market and increased market uncertainty leading to volatility will impact funds in a variety of ways. The post-referendum economic environment will provide challenges, risks and opportunities for funds. The performance of underlying portfolios and the ability of funds to raise money in both the private and public equity capital markets are likely to be impacted.