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The online magazine of the Swiss Bankers Association
2016/09/21 01:00:00 GMT+2

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Brexit and the consequences for Switzerland

Brexit and the consequences for Switzerland

The UK will have to revisit its international trade activities as a result of Brexit. This will also have consequences for Switzerland's European policy. Significant legal uncertainties will arise for the banks in the UK in terms of recognition of EU equivalencies and as a result of the loss of EU passporting.

The trade agreements that come under the jurisdiction of the EU will become void for the UK once its exit from the EU comes into effect. These also include the bilateral sectoral agreements and the free trade agreement of 1972. Important for the UK in the renegotiation of trade agreements is that the trade of services, in particular relating to financial services, is also given due consideration.

Challenges for trade policy

Switzerland should bear in mind that the content of future bilateral agreements with the United Kingdom cannot be negotiated independently of the result that the UK will achieve with the EU. The options available to the UK when shaping its trade relations with the EU, and the consequences that arise for third countries such as Switzerland as a result, are therefore of key importance.

Impetus for European policy

The Brexit also affects Switzerland's European policy. The UK will attempt to secure the greatest possible access to the EU single market; under exclusion of the free movement of persons. Whether the EU will be responsive to this and if so, at what cost, remains open. The United Kingdom will initially negotiate alone. It does not see itself as a “normal” third country and does not wish to be mentioned in the same breath as Switzerland or Norway (EFTA). The UK is only likely to look to create alliances if the bilateral Brexit negotiations do not result in a satisfactory outcome.

The Brexit also affects Switzerland's European policy. Switzerland should continue to try and forge its bilateral relationships with the EU without taking any sideward glances at London.

Switzerland should therefore continue to try and forge its bilateral relationships with the EU without taking any sideward glances at London. In particular, it must clarify its relationship with the EU in terms of the free movement of persons by February 2017. The details of the UK exit agreement will not yet be known by that time. Switzerland should, however, also not strive to find “definitive” solutions with the EU, but rather, wherever possible, apply review clauses in order to take into consideration future developments between the EU and the UK.

Is London’s position as a global financial centre at risk?

London is the uncontested financial capital of Europe. As such, it has two roles: firstly, the city on the Thames is a hub for business with the corporate clients of big European banks. Secondly, it is the gateway for capital from non-EU countries into the single market. The UK risks losing access to the European single market as a result of Brexit, in particular due to the loss of the right to service customers across the entire EU out of London (EU passporting).

The UK risks losing access to the European single market as a result of Brexit.

Overall, Brexit threatens to undermine legal certainty in the UK for an as yet not precisely defined negotiation and transition period. This uncertainty is proving to be particularly serious for finance-related activities. It is unlikely that much will change in the asset and wealth management segments for institutional customers, because EU legislation contains equivalence provisions in these areas (AIFMD and MiFIR among others), which the UK can meet, – on the condition that these are recognised in a timely manner by the EU following Brexit. The fact that London dominates this business globally is certainly also helpful for the UK. 

Brexit threatens to undermine legal certainty in the UK for an as yet not precisely defined negotiation and transition period.

At risk, on the other hand, is the marketing of financial services to private customers. This applies in particular to the business with high net worth private customers. It is possible that banks, the Swiss banks included, will decide to expand their operations in a different EU location to the detriment of London. Some Swiss banks already serve their private EU customers out of Luxembourg and Frankfurt. 

At risk, on the other hand, is the marketing of financial services to private customers.

The UK has manoeuvred itself into a difficult situation as a result of the referendum’s pro-Brexit outcome. Overall, however, the UK's negotiating position is not bad, primarily due to London’s paramount importance as an international financial market. London has a long, successful tradition as a financial centre and a correspondingly deep capital market. The UK will continue to enjoy these advantages in the future. If and how Switzerland can benefit from the new relationship between Brussels and London, however, remains completely open for the time being.

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