InvestmentEurope is publishing rolling comments from the industry on the day that the UK officially exits the European Union.
Please return to this article or refresh your browser window through the day to read the latets comments added.
Chris Cummings, CEO of the UK's Investment Association
"The next eleven months will be crucial in securing a deal that works for the millions of UK and European savers and investors who rely on the services of the investment management industry to provide for their long-term financial goals. The UK government and EU need to ensure that our industry can continue to seamlessly manage savers' money across Europe. Investment managers will now look for the negotiations to provide greater confidence about the access arrangements between the UK and European markets."
Steven Bell, BMO Global Asset Management chief economist
"Boris is celebrating Brexit Day with the usual pomp and circumstance. I'd remind the doomsayers the UK remains a highly educated nation with a skilled flexible labour market and strong institutions. Brexit won't be an economic disaster. But let's be clear, there is nothing positive for the UK economy from Brexit."
"We should now focus on the new cliff edge at the end of this year. Whilst many Europeans would welcome an extension of negotiations, Boris has ruled this out. And we think he'll keep his promise on this one. There is no practical reason why a basic free trade agreement cannot be negotiated this year. The EU were already planning to offer one in the event of a no-deal Brexit."
"The UK will then leave the Customs Union and be free to negotiate its own tariffs with other countries. Whilst this is doable, there are many challenges ahead. With the UK no longer charging the EU's common external tariff there is a risk it becomes a Trojan Horse undermining EU tariffs. To prevent this, British exporters will have to prove percentage UK rules of origin. What these percentages would be and such technical issues as bi-lateral and diagonal cumulation would have to be agreed on thousands of items. This would be a massive undertaking, though entirely possible. Not least because the UK has a huge trade deficit in goods with the EU. Negotiations on services will be subject to much greater protectionist measures, largely because we have a large trade surplus in services with the EU."
"Whatever deal the UK strikes, UK firms will be in a weaker position competing in Europe. For example, the UK will be granted equivalence in financial services by the EU commission but they can withdraw this with just three months' notice. In many areas of services there will be no cliff edge at the end of this year. Much now depends on the spirit of cooperation between the UK and the EU27. For now, it's all friendly and constructive, but that is unlikely to last when the negotiations on the nitty gritty of the deals starts. Fish, which accounts for just 0.12% of UK GDP, could well prove to be a source of acrimony."
"Crucially all the blustering about Brexit has distracted attention from UK fundamentals. We avoided recession after the Brexit referendum but growth has been weak. Prime minister Boris Johnson has ambitious plans to boost growth and he is pushing his chancellor to ditch the fiscal rules and increase spending with a tilt toward the regions in his Budget on 11 March. Business certainly needs a lift: wage inflation is rising but productivity is growing by less than 1%. 4% wage growth means costs rising 3% per year. But this is not consistent with 2% inflation, a problem that will get worse when the living wage is hiked in April. Something has to give. Another problem is the current account deficit which is wide and widening. We'll be watching sterling closely in the coming months, as this could be impacted."
What happens to EU shipments after 31 January? 'Keep calm and carry on,' says ParcelHero
Friday 31 January, will go down in history as the moment the UK officially left the EU. But the international courier services expert ParcelHero says the government's Brexit website, which it spent £100m on promoting last year, now contains virtually no information for exporters, importers and people planning to send a parcel to the EU after the 31st.
ParcelHero head of Consumer Research, David Jinks MILT, says: "The government's ill-fated £100m advertising campaign concentrated on what exporters, couriers and everyone wishing to send items to the EU should do in the event of a no-deal Brexit on 31 October last year. However, last-minute negotiations meant that did not, of course, happen. With a hard Brexit at least shelved until the end of the year, companies and individuals should be aware almost all of the no-deal advice they had been reading does not apply."
"After 31 January, instead of launching into a new regime of customs' invoices and tariff codes, there will be no immediate changes. Businesses and individuals will carry on sending items and receiving them from the EU just as they do today. A year-long transition period will follow until December 2020. We are keeping our essential international courier services guide constantly updated to cover all changes in regulations and prices."
"During this period the procedures for exporting and importing goods and parcels stays broadly the same as now. The government's site has virtually no information on what happens after 2020, either; because only the bare bones of the terms of the UK's exit from the EU have been agreed upon. It simply urges exporters to obtain an EORI number: advice we issued back in 2017. The exact conditions and regulations under which we will continue to trade with the EU will only be thrashed out during the course of the year. So, to be clear, there will be no new customs' checks, paperwork or tariffs on 1 February, for either businesses exporting goods or individuals wishing to send a parcel. It's very much a case of 'Keep calm and carry on', for now."
Jinks says the same also applies to importers and anyone waiting for a parcel from the EU: "Importers and online shoppers ordering items from the EU won't pay any tariffs or duties on items sent from the EU this year, though again the situation is still very unclear beyond 2020."
"The government wants 'zero tariffs and zero quotas', but whether it can successfully negotiate this has yet to be determined. With the possibility that UK manufacturing and packaging regulations could diverge from EU regulations - perhaps returning to misguided plans for a new UKCA CE-safety mark replacement - all international shippers can do is hold their breath. But for now, at least, things remain unchanged."
Neil Wilson, chief market analyst for Markets.com
"The pound is up on Brexit day - there's your headline right there. Of course really this is about the interest rate decision by the Bank of England yesterday. GBP/USD has maintained its post-Bank of England bounce to hit new week highs at 1.31380. Looking for the key break of the previous high at 1.3170 in the near term. In terms of Brexit, our attention is fixed on March 3rd and the start of EU-UK trade talks. Without doubt these talks represent the chief risk event for sterling and for UK equities going into the rest of 2020. Sentiment on the pound could sour quickly if negotiations between the UK and EU falter once they get underway. Indeed traders should be prepared for a troubled, rocky path for the talks and therefore expect significant headline risk for the pound in the coming months. There remains the threat of no deal and investors will be made acutely aware of this as the year progress - coming to potential mini-climax in June, when the two sides will need to be confident of agreement in time for Christmas."
Esma update on governance and reporting obligations
The European Securities and Markets Authority (Esma) has published a statement to clarify issues relating to its governance and the reporting obligations for UK entities from 1 February 2020 following Brexit.
The terms of the Withdrawal Agreement (WA) stipulate that UK representatives will no longer be permitted to participate in the EU institutions, agencies, or other bodies, and their governance structures, except where exceptionally justified, under the conditions set out in Article 128(5) of the WA. Therefore, from 1 February:
- the UK Financial Conduct Authority (FCA) will no longer be a member of Esma's Board of Supervisors or participate in any of Esma's other governance bodies.
By virtue of the WA, EU law will continue to apply to the UK, as if it were a member state, during the transition period from 1 February 2020 to 31 December 2020. This means for instance that:
- rights and obligations for UK entities under EU law will also continue to apply - such as reporting and notification obligations under MifidII/Mifir, Emir, CSDR, AIFMD, MMFR; and
- Esma will continue to directly supervise registered credit rating agencies, trade repositories and securitisation repositories established in the UK during this period.
"In the coming eleven months, Esma will continue monitoring the application of EU law to/in the UK and will closely monitor developments in preparation for the end of the transition period. ESMA will also engage and provide input as necessary with/to the European Commission."
Richard Buxton, head of UK equities at Merian Global
"Whichever side of the EU membership debate you supported in 2016, one thing the vast majority of people seem able to agree on is the "other-worldly" quality that has characterised our national and political discourse in recent years. Setting aside the symbolism that some have attached to the date, after Friday's withdrawal of the UK from the EU, and the two parties have entered the transition period, the absolutely key issue from an investment and economic perspective will be to understand how the thorny topic of the 'future relationship' will be resolved."
"My own view is that, ultimately, cooler heads will prevail and that, behind closed doors, UK decision-makers are not seriously considering arriving at the end of the transition period with no further plans or measures in place, given widespread recognition of the economic damage that would ensue. The chancellor's recent announcement at Davos that the government's 'first priority is getting an agreement with the EU' would seem to lend credibility to this argument. How the detail and results of the negotiations will emerge may ultimately have more to do with how ministers perceive that the debate will play out in public opinion than anything else. Still though, having a functioning government does strengthen the UK's negotiating hand; a series of compromises by both sides would seem to be a likely, albeit untidy, outcome."
"Regardless of the catchy and much-repeated soundbite regarding getting Brexit 'done', most realists recognise that this is just the start of a multi-year process. One welcome fillip of the dawning realisation that Brexit won't simply be 'done' from one arbitrary date to the next, is that if the stock market decides this is going to be a long, drawn-out and iterative exercise, with no credible risk of a 'cliff-edge' exit, then its relevance to markets and significant parts of the economy could fade quite quickly. Such a result could be a real boon for UK equity investors, even if the route to this point has been long-winded and tortuous. Watch this space, and be ready to act; prudent investors - both international and UK domestic - will certainly be doing so."
Donny Kranson, European Equity portfolio manager at Quality Growth, Vontobel AM
"The questions over Brexit aren't over. Many are just beginning. Even the end of the transition can still be extended from the end of this year, which is probable as there are many issues still left to resolve, despite prime minister Johnson's protestations. The UK has to negotiate a trade deal with its largest trading partner, the EU, before the transition ends. These normally take years to negotiate. If the deal isn't agreed to, or extended, a hard Brexit could still result. The UK also has to negotiate trade deals with other countries, again, not a simple task. As the rules of trade aren't known, it is difficult for businesses to plan for the future, likely weighing on growth."
"Europe has already warned the UK that, if their rules differ too much from the EU, they will have less access to the European market. This includes corporate tax rates, state aid, environmental standards, and labor laws. Europe also warned the UK that they have to do checks on goods going to Northern Ireland from Great Britain after Brexit - as they agreed to in the withdrawal agreement - despite Mr. Johnson continuing to say there will be no checks. Basically, it already isn't off to a smooth start."
"Offsetting some of the negatives, the prime minister has a large majority and can push expansionary policies on infrastructure, housing and transportation, while the Bank of England is likely to stay with low rates. Together, these can offset some of the slower investment growth from businesses paralyzed by the uncertainty."
Rob Price, Fixed Income portfolio manager at AXA Investment Managers
"The shadow of Brexit will fall again later in the year, but for now UK credit spreads offer a favourable window of opportunity."
"UK credit spreads in favourable environment in first half of the year as the near term runway appears clear for risk while uncertainty may increase as we approach the end of the Brexit transition period, at which point we expect the uncertainty around the future UK-Europe relationship to weigh on business investment."
"Risks may resurface towards the second half of the year if an FTA does not appear likely, even in a skeleton form, bringing back the spectre of a ‘Hard Brexit' outcome in Jan 2021. In that case a degree of spread widening is almost certain, partly driven mechanically by the decline in gilt yields."
"Ultimately, further accommodation by the BoE and ongoing high demand for sterling fixed income products from cashflow focused schemes, should cap if not reverse such a spread widening."
Paul O'Connor, head of the UK-based Multi-Asset team at Janus Henderson
"The end-2020 deadline for agreeing future UK-EU arrangements will be a major source of pressure on the negotiations. The Withdrawal Agreement does give scope for extending this deadline by a year or two, if that is agreed by 1 July 2020. However, the UK government insists that it will not exercise this option and wants to fully decouple from the EU by the end of this year. The free trade agreement struck between Canada and the EU in 2017 illustrates just how challenging it will be to get a comprehensive deal agreed by that time. That deal was embodied in a 1,000-plus page document, which took five years to negotiate and another three years to approve. The Canada deal had very little coverage of the service sectors, which are a major part of EU-UK trade, and areas where trade agreements are typically more complex than in manufacturing."
"The year-end deadline will not just intensify the negotiations but it will also play a big part in determining the nature of the agreement that can be achieved. The next few weeks will be important here as this will be when EU governments define the mandate that they will give to the European Commission for negotiating the trade deal on their behalf. As things stand, the European Commission is likely to be instructed to proceed on the basis that only a bare bones deal can be achieved by the end of 2020. Accordingly, we would expect the EU to approach the negotiations aiming to work on an agreement involving tariff-free and quota-free trade in manufacturing, but leaving most service sectors arrangements to be determined after the transition phase has ended."
"While time constraints mean that this sort of skeletal Brexit agreement is probably the most comprehensive deal that can be achieved in 2020, even this outcome is far from certain. The president of the European Commission, Ursula von der Leyen, has made clear the trade-off between regulatory alignment and market access that applies here. Her message is that a basic Brexit deal can be achieved this year if the UK retains a high degree of alignment to EU regulations, but the scope of the trade deal will diminish if the UK demands more regulatory independence. On the UK side, the chancellor, Sajid Javid, recently said in an interview that: 'there will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union - and we will do this by the end of the year'"
David Zahn, head of European Fixed Income at Franklin Templeton
"Trade negotiations are arguably the most significant piece of unresolved work. The EU has allowed for the unfettered movement of people and goods within its 28-member countries. Now, the remaining 27 countries and the European Parliament must figure out how the goods and services relationship progresses with the United Kingdom outside the bloc."
"The early worst-case fears were tied to border gridlock preventing the movement of goods into and out of the United Kingdom, along with the potential for a massive departure of UK-headquartered multinational companies to other countries. While there have been a few hiccups, the worst-case fears largely haven't materialised."
"We have seen some UK companies leave the country, and business and consumer confidence have been negatively affected throughout the Brexit process. But, on the flip side, some domestic companies have benefitted from the weaker British pound as exports become cheaper to foreign buyers."
"The Brexit deal negotiated with the EU calls for the United Kingdom to leave the customs union. Still, Northern Ireland will continue to follow and enforce many EU rules, making for some potential sticking points at the border or in the middle of the Irish sea."
"That's just one localised border issue. The UK faces a transition period until 31 December 2020, to work out new trading relationships with other countries. Until then, it will follow EU rules and existing trading relationships. We are not the only ones who think 11 months is a very aggressive deadline for such a monumental task. Some countries have taken over 10 years to work through trade agreements."
"So, we would anticipate a lot of noise around trade this year, but UK Prime Minister Boris Johnson seems keen to start trade deals sooner rather than later."
"There is still a chance that the United Kingdom could crash out with no trade deal at the end of the year, but that would represent a systemic event that could result in a default to World Trade Organization rules. It is possible for the United Kingdom to ask for an extension on trade with the EU, but it would have to do so in June or July."
"European trade will be hit if there's no trade deal in place because it runs a big surplus with the United Kingdom. That all said, in the end, we are optimistic that the UK can get a deal done with the EU."
Quinn Perrott, co-CEO of TRAction
"One could say that now is the time when Brexit really starts to matter most for asset managers across Europe. For it is now when, through a short transition period, key decisions on the UK's future economic relationship with the EU will be hotly debated. With the ink barely dry on the Withdrawal Agreement, the chest beating rhetoric has already started in earnest. From Mr Varadkar's demands that the UK 'follows existing rules' in order to access EU markets, to UK chancellor Sajid Javid calling for a 'bold and innovative' approach to post-Brexit regulatory oversight of markets, both sides are unsurprisingly unwilling to sing from the same hymn sheet at this stage in the trade talks. But with the EU seemingly pulling in an equivalence direction, while the UK calls for an outcomes-based approach, this all has the potential to create certain opportunities for traders, as well as a huge amount of complexity."
"On the positive side, it is no secret that traders have been hamstrung by unnecessary EU leverage restrictions when trading Contract for Difference (CFDs). If Javid gets his way and the UK significantly diverges from existing EU rules like this, then this gives the UK the opportunity, for instance, to offer more favourable leverage to attract FX and CFD brokers to London. However, depending on how far the UK shifts from current EU rules, divergence could bring multiple challenges to the less glitzy operational side of finance - such as trade reporting. Failure to reach some form of reciprocal recognition of how both markets are governed adds a significant administrative cost burden to investment firms, especially those offering delegated reporting to corporate clients, both in the UK and EU."
"Those asset managers subject to both EU Mifid II, and an FCA version of Mifid II (or with clients subject to both), will need clarity on whether or not they will need to split out transaction reporting duties so that they can commence the necessary tech and data changes by the time the transition period ends at the end of December 2020. If the UK does decide to become the 'Singapore of Europe' post the transition period, all the reporting leg work done to date could need a lengthy and complex re-work. That said, given all the twists and turns in the Brexit saga to date, asset managers should expect the unexpected. July is the cut-off date for both sides to agree a further extension to the transition period. And while Boris has definitively ruled out an extension, he also definitively said the UK would be leaving before the end of October. From an investment management perspective, the only thing they can do, when it comes to reporting, is to try their best to prepare for all possible outcomes."