Brexit uncertainty likely to last beyond activation of article 50 and withdrawal process.
- The effects of Brexit are not clear. The markets reacted quickly, but mostly bounced back. Some argued that the effects of passporting and regulations from the EU are yet to be seen, still waiting for to be felt; however our expert on legal matters was assertive at saying that they will be seriously felt if the final result of the Brexit negotiations do not allow for UK-based institutions to sell products and services to EU countries.
- On passporting, for UK institutions to sell products and services in the EU, passporting will depend on final regulation and agreements; difficult to see how this will crystallise as regulation can be different per product (e.g. spot FX unregulated). For EU institutions selling in the UK, the UK tends to be generally more open towards foreign banks, but maybe branches will have to create subsidiaries.
- Some of the panellists claimed to be more worried about other non-Brexit risks. E.g. ultra-low interest rates, the US election, the internal stability of the EU (pre-world war 2 alliances where mentioned), geopolitical risks, Russia role in the world, middle east instability, etc.
- The following scenarios were discussed as likely: GBP may fall to parity with USD due to budge and payment deficits, UK rates stuck in a low flat corridor with negative implications for bank profitability, UK will import inflation such that real rates turn negative while nominal rates remain just positive. The long-term consequences of them are unknown.
- Brexit campaign suffered from communication bias in favour of the Remain vote. The role of risk managers is to counteract this and communicate the “dark side” efficiently.