Brexit negotiations continue, but little headway has been made regarding the final terms of the United Kingdom’s departure from the European Union (EU).
The UK’s upcoming divorce from the EU will not come without costs, and no matter what the eventual scenario, those costs will be substantial and far-reaching, on both sides of the fence. UK banks already have a lot on their plates in the form of new-regulation compliance, but it is now or never to prepare for EU-27 inclusion after March 2019.
On November 21, Zimbabwe’s President Robert Mugabe resigned, ending his 37-year rule of the southern African nation. The resignation followed an intervention by the country’s military after Mugabe sacked his vice president, Emmerson Mnangagwa
Financial institutions in the UK are waking up to the inevitability of Brexit, and thus they are beginning to budget for contingency plans, especially after the Bank of England requested that banks submit their plans for a hard exit. Planning ahead now is certainly prudent, as not doing so is guaranteed to leave banks struggling to cope with new regulations and changing market conditions.
Although the fine details have yet to be ironed out, there is no doubt that Brexit will have significant and long-lasting effects on financial-services institutions and businesses in the UK and the EU27. A hard-Brexit is the most jarring scenario, so what are the likely costs of a hard landing after all the negotiations are completed and the dust settles?
Like any divorce, Brexit is going to get complicated—even more so because of the variety of contradictory opinions about how it should be handled. There are four main scenarios, ranging from “smooth” and “transitional” to “cliff-edge” and “chaotic”. Prime Minister Theresa May is rooting for a “hard Brexit”, but many others are hoping for a much softer landing.
Islamic finance is gaining momentum, not only in Islamic countries but also in Western countries such as the UK—and not only among Muslims. Brexit is guaranteed to affect Islamic banking’s continuing development in the UK, but will the EU divorce be an advantage or disadvantage for the relatively nascent Sharia-compliant industry? Much will depend on how the negotiations play out.
Just as the United Kingdom appeared to be making some progress on determining its route out of Europe, British politics once again threw up the most unpredictable of scenarios. The nation’s general election on June 8 resulted in Prime Minister Theresa May’s Conservative Party failing to win a parliamentary majority.
UK voters chose independence, but at what cost to their own financial industry and those of other nations? EU negotiators are not liable to go easy on the breakaway nation, fearing that others may follow suit, so the UK’s hopes for a soft Brexit are unlikely to be realized; casting doubts about London’s future preeminence as a prime financial hub.
Financial managers need to know what to expect, but in the UK with the inevitability of Brexit there are as many or more unknowns as there are knowns, especially in relation to trade and trade finance. To reduce risks, policymakers who negotiate the terms of the Article 50 process should consider from the start how their decisions will affect trade and its finance.