Implications of Brexit for the post-trade industry

Beginning in August, Thomas Murray Data Services began to post a short series of thought pieces not about what Brexit would look like, which to our minds remains unknowable; but instead about the kinds of questions the firm will be asking itself.

This posting is the last of the five-part series.

Going forward – it will be about regulation

No matter what the framework for the UK’s relations with the remaining 27 countries, whether “hard Brexit” or “soft Brexit” or some as yet undefined compromise, for financial services the key remains regulation.

Since late in 2008, starting at the most tense and uncertain moments of the Western world’s financial failures, all actors in the financial services industry have been subject to government responses in the form of lengthy, complex pieces of legislation and regulation that have been hard to understand, and too often contradictory in their effect from one jurisdiction to another. That may be understandable given the need of governments to limit the cost to taxpayers, but in the end the lack of international co-ordination remains problematic. But as all professionals in our industry know, financial services are regulated businesses, and the public purse was and has been on the line – and heavily used.

Regulation literally sets the framework for the businesses Thomas Murray follows: post-trade infrastructures and asset servicing. And the word ‘framework’ means exactly that, the regulation does frame the outline of what is possible and what is not for those choosing to be in these businesses, and in what ways one can act.

Changing technology does also keep changing the commercial possibilities and ways of working, opening up opportunities for those in these businesses. But at the end of the day, government policy trumps all.

So, ultimately, will British-based financial services companies have the passport to trade into the R-27 countries, or will there be limitations? If there is “hard Brexit,” will this be an opportunity for the UK authorities to rewrite the rules so that the British financial markets are somehow easier, simpler, or in some way friendlier for business, and that the UK can retain an advantage over its continental rivals? It is understood that any sweep of the broom could not get rid of the entire system, either – there are the limitations of global guidelines set by the Basel Committee, CPMI, and IOSCO, as well as considerable legacy expertise to build from.

More than three months after the Brexit Referendum, it seems hard to imagine that the extraordinary expertise concentrated in London – the markets, the lawyers, the accountants, the asset managers and traders – could it really all disappear? Can the complex patterns woven into London over the decades unravel? Would people really move to the Continent in significant numbers such that London gets hollowed out? Again, this seems hard to imagine for the inventiveness built into the same ecosystem. The government is taking its time, because Brexiting is indeed hard to figure out.

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These are some of the questions Thomas Murray has. The answers are unknown. The possibility for change is historic. Something truly significant did happen with that vote.

Tags: Brexitpost-trade European UnionPost-trade infrastructuresAsset ServicingRegulationBasel CommitteeCPMIIOSCO