PIMFA warns on the consequences of a no deal Brexit

Following the fast-moving Brexit developments, PIMFA – the UK’s leading wealth management and financial advice association – has raised concerns on the potential impacts of a ‘no-deal’ Brexit and how it will affect private investors and PIMFA’s member firms.

The recently increased risk of a no-deal situation at the end of March 2019 may have appeared to have receded a little following the passing of Government’s Chequers and White Paper proposals and the start of a summer negotiating campaign with EU member States and the European Commission.

However, it remains a distinct possibility in the light of continuing differences and numerous unresolved issues.

For PIMFA members such an outcome would be disruptive and expensive. The people who would ultimately pay for any increase in costs or reduction in investment possibilities would be the clients of our firms. These are often ordinary individuals and families who in many cases are voters. In order to avoid this consequence for ordinary citizens, PIMFA has consistently argued that a no-deal Brexit must be avoided and that a broad-ranging and well-founded UK/EU agreement based on the principles of mutual recognition should be in place by the end of a transition period.

John Barrass, PIMFA Deputy CEO said “at present, focus is on the application of ‘enhanced equivalence’ rather than mutual recognition, but equivalence does not apply to dealing with clients in the retail investment sector so, unless the final delineation of enhanced equivalence changes this, there will be no effect on the position of PIMFA firms”.

“PIMFA has repeatedly made it clear that an orderly, 3-phase approach to Brexit is both essential and achievable. This necessitates securing consensus around a Withdrawal Agreement in phase 1 to include a transition period as the core of phase 2 in which the final agreement for phase 3 is negotiated and agreed. The aim is to secure a one-step Brexit at the point of implementing phase 3, which firms can be aware of and plan for well ahead of time. This would minimise disruption and the costs of changing to business patterns suitable for a non-EU state”.

Currently, the draft Withdrawal Agreement would make this possible. While tight on time in phase 2 the transition period it advocates until 31 December 2020 effectively means that no changes to business models will be needed until then. During those 21 months the government and EU partners can be expected to negotiate the final form of the UK/EU agreement to operate from 1 January 2021 onwards. Firms can be made aware of how this is shaping up and plan accordingly.

It is therefore vital that the Withdrawal Agreement is not jeopardised in the current focus on the key principles of phase 3. Without a proper phase 2 and smooth transition, phase 3 itself could become disorderly and highly disruptive to business. This will adversely affect employment, growth, costs, tax revenues and investment. There will be little benefit to UK consumers or firms.

PIMFA calls upon the government, EU member states, and the European Commission and Parliament, to ensure that a proper phase 2 with a minimum transition period, as enshrined in the March 2018 version of the draft Withdrawal Agreement, is retained and not sacrificed in negotiations on the principles of the phase 3 agreement. This would lead to a no-deal Brexit that would be damaging across the board for EU members, including to all PIMFA members and their retail clients.

Following the fast-moving Brexit developments, PIMFA – the UK’s leading wealth management and financial advice association – has raised concerns on the potential impacts of a ‘no-deal’ Brexit and how it will affect private investors and PIMFA’s member firms.

The recently increased risk of a no-deal situation at the end of March 2019 may have appeared to have receded a little following the passing of Government’s Chequers and White Paper proposals and the start of a summer negotiating campaign with EU member States and the European Commission.

However, it remains a distinct possibility in the light of continuing differences and numerous unresolved issues.

For PIMFA members such an outcome would be disruptive and expensive. The people who would ultimately pay for any increase in costs or reduction in investment possibilities would be the clients of our firms. These are often ordinary individuals and families who in many cases are voters. In order to avoid this consequence for ordinary citizens, PIMFA has consistently argued that a no-deal Brexit must be avoided and that a broad-ranging and well-founded UK/EU agreement based on the principles of mutual recognition should be in place by the end of a transition period.

John Barrass, PIMFA Deputy CEO said “at present, focus is on the application of ‘enhanced equivalence’ rather than mutual recognition, but equivalence does not apply to dealing with clients in the retail investment sector so, unless the final delineation of enhanced equivalence changes this, there will be no effect on the position of PIMFA firms”.

“PIMFA has repeatedly made it clear that an orderly, 3-phase approach to Brexit is both essential and achievable. This necessitates securing consensus around a Withdrawal Agreement in phase 1 to include a transition period as the core of phase 2 in which the final agreement for phase 3 is negotiated and agreed. The aim is to secure a one-step Brexit at the point of implementing phase 3, which firms can be aware of and plan for well ahead of time. This would minimise disruption and the costs of changing to business patterns suitable for a non-EU state”.

Currently, the draft Withdrawal Agreement would make this possible. While tight on time in phase 2 the transition period it advocates until 31 December 2020 effectively means that no changes to business models will be needed until then. During those 21 months the government and EU partners can be expected to negotiate the final form of the UK/EU agreement to operate from 1 January 2021 onwards. Firms can be made aware of how this is shaping up and plan accordingly.

It is therefore vital that the Withdrawal Agreement is not jeopardised in the current focus on the key principles of phase 3. Without a proper phase 2 and smooth transition, phase 3 itself could become disorderly and highly disruptive to business. This will adversely affect employment, growth, costs, tax revenues and investment. There will be little benefit to UK consumers or firms.

PIMFA calls upon the government, EU member states, and the European Commission and Parliament, to ensure that a proper phase 2 with a minimum transition period, as enshrined in the March 2018 version of the draft Withdrawal Agreement, is retained and not sacrificed in negotiations on the principles of the phase 3 agreement. This would lead to a no-deal Brexit that would be damaging across the board for EU members, including to all PIMFA members and their retail clients.