Britain will pull out of the EU single market, UK Prime Minister Theresa May confirmed in key note Brexit speech on Tuesday.
Giving details of her planned Brexit negotiating strategy for the first time, May, who has hinted on a hard Brexit since she took over from David Cameron in June, was clear that Brexit cannot mean the UK remains in the single market.
Instead, she proposed a “comprehensive free trade agreement” between the EU and the UK with a modified customs union deal, which would allow the UK to negotiate other trade deals beyond the EU.
Major talking points from May’s speech were leaked over the weekend and reports suggested many UK banks and asset managers already had no hope of retaining access to the single market, which guarantees the free movement of goods, services and people within the EU without restrictions or tariffs.
"This has been our expectation," said AXA Investment Management's senior economist David Page. "But we believe that such an outcome is unlikely to prove an easy or quick process."
"We still consider the government’s expectation that this can be achieved within the two-year Article 50 timeframe as unlikely. Hence we look to a “transition deal” to spare the UK and EU from a “cliff-edge” separation in 2019 and May hinted at this as she discussed a phased in process of implementation”.
Carolyn Fairbairn, director-general of the CBI, the UK's premier business organisation, said ruling out membership of the single market has “reduced options” for maintaining a barrier-free trading relationship between the UK and the EU - although she welcomed the clarity given by May.
Chris Cummings, chief executive of the Investment Association, added that "much work is needed to ensure that the terms of the future relationship with the EU safeguard the interests of savers and investors who make use of Europe's pre-eminent asset management centre in the UK."
Financial compliance is another key area of concern. Alastair Brown, chief executive of Lombard Risk said negotiating separate trade agreements is going to be "time consuming and complex".
“The key issues especially with EU are not just about securing tariff-free access,” he explained. “For our financial clients, it is also about the regulatory and compliance requirements that UK firms will have to adhere to in each of the markets that we trade with in future" Getting that right, Brown added, will be a “minefield” for companies and requires significant work to ensure that all the legal requirements and standards are adhered to and compliance is accurately tracked and reported.
Mihir Kapadia, chief executive and founder Sun Global Investments, said businesses can continue to operate in full confidence, especially on the financial services front. “The only worst case scenario we have to account for is of a sour Brexit – something politics and politicians handle. It is up to them to get us the best deal possible, and we are confident things would materialise.”
Kapadia added that Germany, Netherlands and France, the biggest members of the European Union, are experiencing a rise in protectionist and inward looking political outfits. "This threatens the very existence of the union, destabilise the Euro Zone policies and devalue the Euro. If the markets aren’t capable enough to adapt for the smaller Brexit reality, we are fundamentally unprepared to handle much bigger threats which may be oncoming in the horizon.”