Residents of the UK made their voices heard, electing to leave the EU. But as the changeover approaches, there are still many questions about the new face of finances – at home and across Europe. Until some of these complex issues are resolved, Britons remain at a disadvantage, wondering how Brexit will actually impact their personal finances.
Since the vote to leave the EU, Brexit concerns have lingered in the background, influencing financial outcomes in the UK. The economy has actually fared better than many experts might have expected, showing some of the same positive signs shared by other countries recovering from the global financial crisis, now a decade behind us.
Surprisingly, consumer confidence has remained high, despite the uncertainty surrounding the planned change. Recent polling suggests some Britons are starting to feel less sure about their financial futures, but unemployment remains low and inflation is thought to be on the wane. Broader concerns may be on the horizon, however, as Europe’s financial markets prepare to integrate the new realities of Brexit.
Potential Risks Resulting From Brexit
It seems as though Brexit has been unfolding for a long time. In fact, the official departure from the EU is less than a year and half from being fully realised. Despite the number of calendar pages we’ve turned over since the vote, and the relatively few remaining before things become official; there is still much to be finalised for a smooth transition. In particular, a timely report from AFME, the Association for Financial Markets in Europe, points to a few sticking points yet unresolved.
Data Sharing – Whether you’re shopping providers for no-credit-check loans, managing pension investments, or making a formal mortgage application, it’s important to protect your personal data. Legal restrictions and your own diligence are two worthy lines of defense against data irregularities, but Brexit could muddy the waters, making it difficult to effectively share data, as needed.
The Bank of England voiced concerns about data sharing in September, warning against some of the potential ramifications of the game changing split. It is thought sharing data between EU27 and UK firms could grow difficult post-Brexit, unless measures are adopted specifically targeting this essential feature of financial relationships. BOE warns failing to nail-down the specifics could undermine financial stability across Europe.
Jurisdiction Issues – Financial service firms and contracts operate under particular jurisdictions. Since many fall under the jurisdiction of English courts, Brexit could destabilise existing financial relationships – unless steps are taken smooth out these jurisdictional issues.
According to AFME, the major risk could impact a sizable number of financial services contracts. At issue is ensuring existing jurisdictions continue to be recognized after the Brexit transition has been completed and that court judgements are upheld and enforced throughout EU27 and the UK.
Bank Recovery and Resolution Directive (BRRD) – This safeguard was put in place to protect citizens from funding bailouts. It provides for automatic recognition of resolution actions throughout the EU. Without an intergovernmental agreement in place, recognition would not be automatic post-Brexit, which could result in problems for banks and other financial institutions, as well as taxpayers.
Clearinghouses – The complex web of financial interactions across Europe relies on “central counterparties” (CCPs). The clearinghouses support trading in European derivatives and equities. Because many of Europe’s most prominent CCPs are located in the UK, continuity following Brexit depends upon EU banks being authorised to keep doing business as usual with UK clearinghouses. Unless a framework is established before Brexit is finalised, some organizations could find themselves in breach of laws governing CCPs.
The final stages of the Brexit transition loom on the horizon, posing uncertainty for British families. Close to home, many UK residents wonder how the sea change will impact their household finances. And as the date for finalising the UK’s exit from the EU grows nearer, there are also pressing issues to resolve at the international level.