Brexit

Executive Summary

The result of UK referendum on its membership of the EU creates significant uncertainty for the Banking and financial services industry. There will no doubt be much speculation in the coming weeks and months as to the implications for the sector:

• What does Brexit imply for the EU’s (and Cyprus’) economy
• What will happen to passporting for UK firms with EU operations
• What will happen to EU firms with UK operations?
• What aspects of EU financial regulation will the UK retain, and on what terms?

In immediate terms, despite the fundamental and unprecedented outcome of UK’s referendum, it's ‘business as usual’ as far as the regulatory and legal framework that governs Banks and other financial institutions operating in, or transacting with, the UK is concerned. EU legislation will continue to apply while the UK remains a member of the EU, unless there is political intervention to change that.

Banks and other financial institutions operating within, from and into the UK now face a period of market volatility and weakness together with prolonged uncertainty with some of the important details may only be settled towards the very end of the negotiations.

This uncertainty will last until the UK negotiates the terms of its departure which looks likely to be at least two years from when it gives formal notification of its decision to leave. With the expected impact on both the UK and EU’s economic growth and the risk of collateral damage to the EU gives European countries a possible incentive to ensure a speedy separation, with the earliest practicable date of exit being at some point in 2018.

To operate successfully in this environment will require meticulous planning, including scenario analysis and, the identification of triggers to activate elements of those plans, and, in some cases, taking early decisions to secure maximum flexibility and optionality for the future.

The answers to these and many other questions will hopefully emerge in due course. In the meantime, we have attempted, through this briefing note, to provide an overview of:

• The next steps relating to the UK leaving the EU,
• The different models the UK could select as the basis for its future relationship with the EU
• The expected financial impact on the UK, EU and Cyprus and
• Some of our thoughts on how Cyprus Banks and other financial institutions can best prepare themselves for the uncertainty and opportunities that lie ahead.