The Rule of Law: Brexit and Financial Services
Professor John McEldowney
School of Law – University of Warwick
Abstract
The decision to leave the European Union, following the referendum in June 2016, highlights how economic and financial issues underpin much of how we are governed. Brexit, when coupled to the 2008 financial crisis has considerable influence over our constitutional and political institutions, given the significance of the crisis on banks and financial institutions. Financial markets and the economy are likely to dominate events for the foreseeable future. Market turbulence is hard to anticipate but it is very likely since uncertainty surrounds the future health of the UK economy as the UK seeks to negotiate a new relationship with the European Union. Britain depends on trade and the success of trade will be a major factor in assessing the effect of the UK’s departure from the EU(). In the area of trade, financial services contribute around £130 billion annually to the UK economy. Financial services account for 7{1c50122ad51fd5b2438836520ab31cd50b07f4dd3745280cce9fd97a7a61f1e9} of GDP and employs around 1.1 million people, the majority live outside London().
There are around 100,000 non-EU nationals and 60,000 EU nationals employed in the financial markets in the UK. There is a highly skilled workforce with 50{1c50122ad51fd5b2438836520ab31cd50b07f4dd3745280cce9fd97a7a61f1e9} educated to degree level or equivalent. The IMF concluded that “the growth in the UK’s financial sector owes much to the single market” with the UK trade in financial services much greater than the OECD average().
It is estimated that one third of the UK’s financial and insurance services are with the EU and almost all the UK Banks’ investments are with the EU. The referendum result in June 2016 has raised many questions about future arrangement for the UKs financial sector which is the largest in Europe. Its significance has been given some prominence in the discussions about the consequences of leaving, frequently aroundtechnical details that often overlook the importance of Parliament and the constitutional importance of the rule of law. The run up to the triggering of Article 50 and the negotiations that will eventually lead to the final exit arrangements provide an opportunity to take stock of what is at stake for the UK economy. Whatever the final exit arrangements are, the role of parliamentary scrutiny will become an important element in ensuring appropriate accountability of the UK government and its future relations with the EU after exit. The significance of the rule of law in ensuring checks and balances on the financial arrangements has wider constitutional significance in the long term for our system of government. Estimates of the economic impact of leaving the EU are hard to make() but it is commonly assumed that the sensitivity of the UK financial sector is greater than in other parts of the economy. The stakes could not be greater.
London is the wholesale financial centre for the EU. It hosts nearly 360 Banks, many of the major insurance companies and is the largest stock exchange in the EU. Even the three rating agencies have their EU Head Offices in London. The single market has created freedoms that have been transposed in various Directives and are the result of a long process of development. It is not easy to replicate or imagine that what has been achieved will be repeated as much of the current achievement has come from past experience and learning from mistakes and new events.
This takes time and effort. This paper provides a synopsis of some of the emerging issues for financial services and Brexit. There are growing concerns that the UK may lose out to other market capitals such as New York. Brexit raises fundamental issues of national and international importance.