In the run-up to the UK’s referendum on EU membership on 23 June, experts are warning that there are still many questions left unanswered.
‘It’s really a crystal ball – you can think of anything,’ says Hendrik Haag, a partner at Hengeler Mueller in Frankfurt and Chair of the IBA’s 2009 Task Force on the Financial Crisis.
‘The UK could even be outside of the EU but continue to be a member of the European Economic Area, like Norway, which basically means that European rules also apply. This seems very unlikely though because the UK would have to abide by European legislation without having any opportunity to influence it.’
Philip Wood, Special Global Counsel at Allen & Overy, who was also a member of the Task Force, agrees the prevailing uncertainty presents voters with a considerable challenge: ‘Nobody quite knows what they’re voting for – to be like Norway? Or are we going to be like the US, Turkey or Switzerland? Do we want to be like any of these countries? We just don’t know.’
As the British Pound continues to wobble, both Haag and Wood note the immediate concern for the financial services industry is what deal the UK would be likely to get as a non-EU member.
‘‘I think there’s a lot of incorrect understanding of the transfer of sovereignty, which in fact I think is very small in practice
Philip Wood, Special Global Counsel, Allen & Overy
Haag warns that leaving could limit some of the existing freedoms enjoyed by the UK’s financial services industry. ‘In the UK now you have a type of "passport" which means if you have a UK banking licence, asset management licence or investment banking licence it’s possible to render these services throughout the EU,’ he says. ‘However, if the UK left the EU this privilege is very likely to fall away.’
He says another question is how banks, which have a presence throughout the EU but whose operations are currently centralised in London, would structure themselves going forward: ‘If the UK is no longer in the EU, then European outlets would need to be beefed up and there would need to be stronger local subsidiaries, whether they’re in Frankfurt, Paris or Dublin.’
Brussels-imposed regulation has been at the centre of much of the ‘Leave’ campaign’s arguments to date, but Wood suggests it would be hard for the UK to leave such regulation behind. ‘So much of our law is tied into European law and I think unravelling that and deciding what to take and what not to take would be quite a bitter and rancorous issue,’ he says.
‘I think there’s a lot of incorrect understanding of the transfer of sovereignty, which in fact I think is very small in practice. It looks like we’ve lost sovereignty because of regulations, which can be very intrusive. There are about 30 regimes altogether and everybody says it’s too much, but it’s not just Brussels. Every Western, advanced, developed state has got a regulatory system that is completely out of control.’
‘The UK has got a lot of its own regulatory enthusiasts, so my conclusion is that if we left the EU we would put all that regulation in our suitcase and bring it back. I don’t think somebody would hit the ‘delete’ button and it would all disappear in a puff of smoke. It would be very controversial in terms of what we would keep and what we wouldn’t, but the chances of it being changed I don’t think are very high.’
In fact, Janet McDavid, a partner in Hogan Lovells’ Washington DC office and Co-Chair of the IBA’s Antitrust Committee, says leaving the EU could create more red tape for companies operating in the M&A space.
‘I am of course viewing this issue as a non-EU, non-UK lawyer, but from my perspective as someone who advises multinational companies on a range of issues including merger review, one of the key issues would be that transactions would no longer benefit within the EU from the one-stop-shop merger review, which has allowed companies to make merger filings with the European Commission and avoid multiple reviews by European authorities,’ she says.
‘In the event of Brexit, some transactions would be notified to the EU and also to the UK Competition and Markets Authority. So in that sense it could impose additional burdens on companies involved in mergers and acquisitions.’
Like other lawyers that spoke to Global Insight, Haag admits it is difficult to predict the legal, business and trade implications of a potential EU withdrawal while the scenario remains so uncertain. ‘Nobody knows what the relationship in legal terms is going to look like,’ he says. ‘Yes some things will certainly become more difficult, but whether this has a strong impact on the business environment in the UK really depends on how flexible these rules will be. Everybody expects two years of negotiations at minimum, but it’s very clear the EU’s lever is much longer.’
Lourdes Catrain, Vice-Chair of the IBA’s International Trade and Customs Law Committee and director of Hogan Lovells’ European International Trade and Investment Group, says ‘the extended nature of the negotiations that are likely to surround the exit process, as well as the many permutations of the eventual trading relationship established’ make it difficult to speculate what the outcome of any negotiations could be at this stage.
Catrain adds that any direct legal effect would only apply once negotiations had been concluded: ‘Under Article 50, the leaving country is allowed two years to negotiate its departure from the date of notifying the European Council of its intention to leave,’ she says.
‘There is a European Council meeting on 23–24 June, which will be too soon for such a notification. The next one is 20–21 October. This is the earliest likely date for notification of intention to leave, with the two-year period commencing at this point. It is [only] possible to vary this negotiation period with the unanimous consent of the European Council.’
Amid fears that a UK withdrawal could destabilise the EU by encouraging other member countries to consider leaving or renegotiating the terms of their membership, Wood argues that lawyers in the UK are well-positioned to debate both sides of the argument.
‘I think actually the UK carries a lot of goodwill about certain things, like the rule of law, a market economy and a sense of the values of the way of European living. I think many Europeans would regard these beliefs as reassuring and I think really the UK would be a great source of strength for the essential ideas of Europe.
‘I think lawyers are extraordinarily well-placed to discuss these issues. It is lawyers’ job to articulate a moral, ethical or functional regime through the language of the law and the European project is essentially that.’