Cesc Fàbregas, Christiano Ronaldo, Robin van Persie, Mario Balotelli, Bastian Schweinsteiger; if the Remain campaign had told the electorate that exiting the European Union would prevent any of these great European players from playing in England’s premier league, leaving us with the sort of teams that lose to Iceland, the Brexit result might have been very different.

The fallout from the Leave vote continues to settle over London in all sorts of areas; the Bank of England is planning to cut banks’ capital requirements as early as this week and could cut interest rates within months, sterling continues to fall and gilts have gone negative, Norwegian energy company Statoil says the Brexit vote presents a risk to co-operation on climate change, Barclays and Royal Bank of Scotland both briefly suspended their shares last week to prevent yet more catastrophic losses and the S&P cut Britain’s credit rating.

The Bank of England has also reduced the so-called countercyclical capital buffer to zero to allow banks to lend more. Chancellor of the Exchequer George Osbourne has proposed cutting corporation tax from 20 percent to 15 percent, coming close to Ireland's 12.5 percent, to encourage businesses to invest in Britain. And in a pair of stunning desertions, two leading Brexit Leave campaigners—Boris Johnson, former mayor of London, and Nigel Farage, now former leader of the U.K. Independence Party—have both bowed out of any involvement in actually negotiating a Brexit.

“Nobody’s got any idea what’s going to happen because no one expected the vote to go that way,” said Bill Howarth, president of the U.K.-based International Compliance Association. (Editor’s note: Howarth is also a Divisional Director of Wilmington plc, Compliance Week’s parent company.)

Business certainly did not expect the result to go the way it did, although many have put out statements saying that contingency plans were in place for the eventuality. For example, Barclays CEO Jes Staley put out a statement last week saying that the business was a transatlantic one and would remain so, with “anchors” in its two home countries, the United States and the United Kingdom. “The strategy we announced on 1 March was not conditional on the U.K. remaining in the EU,” he said. This did not, of course, prevent the bank from losing a large amount of value with the stock price dropping from 187p to 127p immediately post-Brexit, though it has gained some of this back. The experience was the same for many banks and other businesses. 

Howarth noted that the financial services sector seemed to be bearing the brunt of the fallout. “The banking sector was contracting even before the decision because of the uncertainty. Shares have bounced back a bit, but the banks are still suffering. Times like these banks usually make cuts in marketing or training, but, like 2008, I doubt there’ll be many cuts in compliance or compliance training. Actually, change is good for the compliance industry because we have to keep track of what changes are coming, how they are going to affect regulations and beware of firms looking for loopholes.”

“The financial services sector needs to keep everyone up to date regularly so sentiment remains positive. They need to make sure they are communicating carefully what effect Brexit might have on their P&L, because customer confidence is very touchy.”

Bill Howarth, President, International Compliance Association

In its statement on the referendum result, the Financial Conduct Authority, the body that oversees the financial industry, said: “Much financial regulation currently applicable in the U.K. derives from EU legislation. This regulation will remain applicable until any changes are made, which will be a matter for Government and Parliament. Firms must continue to abide by their obligations under U.K. law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.”

“The financial services sector,” said Howarth, “needs to keep everyone up to date regularly so sentiment remains positive. They need to make sure they are communicating carefully what effect Brexit might have on their P&L [profit and loss], because customer confidence is very touchy.”

Governor of the Bank of England, Mark Carney, made an earlier statement before the latest round of capital easements, saying: “A few months ago, the Bank judged that the risks around the referendum were the most significant, near-term domestic risks to financial stability. To mitigate them, the Bank of England has put in place extensive contingency plans. These begin with ensuring that the core of our financial system is well-capitalised, liquid, and strong. This resilience is backed up by the Bank of England's liquidity facilities in sterling and foreign currencies. All these resources will support orderly market functioning in the face of any short-term volatility.” While we are still in the short-term volatility stage, some of these plans appear to be already coming unstuck.


Below: a look at the statement from the governor of the Bank of England.
The people of the United Kingdom have voted to leave the European Union.
Inevitably, there will be a period of uncertainty and adjustment following this result.
There will be no initial change in the way our people can travel, in the way our goods can move or the way our services can be sold.
And it will take some time for the United Kingdom to establish new relationships with Europe and the rest of the world.
Some market and economic volatility can be expected as this process unfolds.
But we are well prepared for this.  The Treasury and the Bank of England have engaged in extensive contingency planning and the Chancellor and I have been in close contact, including through the night and this morning.
The Bank will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward.
These adjustments will be supported by a resilient UK financial system – one that the Bank of England has consistently strengthened over the last seven years.
The capital requirements of our largest banks are now ten times higher than before the crisis.
The Bank of England has stress tested them against scenarios more severe than the country currently faces.
As a result of these actions, UK banks have raised over £130bn of capital, and now have more than £600bn of high quality liquid assets.
Why does this matter?
This substantial capital and huge liquidity gives banks the flexibility they need to continue to lend to UK businesses and households, even during challenging times.
Moreover, as a backstop, and to support the functioning of markets, the Bank of England stands ready to provide more than £250bn of additional funds through its normal facilities.
The Bank of England is also able to provide substantial liquidity in foreign currency, if required.
We expect institutions to draw on this funding if and when appropriate, just as we expect them to draw on their own resources as needed in order to provide credit, to support markets and to supply other financial services to the real economy.
In the coming weeks, the Bank will assess economic conditions and will consider any additional policy responses.
A few months ago, the Bank judged that the risks around the referendum were the most significant, near-term domestic risks to financial stability.
To mitigate them, the Bank of England has put in place extensive contingency plans.
These begin with ensuring that the core of our financial system is well-capitalised, liquid and strong.
This resilience is backed up by the Bank of England's liquidity facilities in sterling and foreign currencies.
All these resources will support orderly market functioning in the face of any short-term volatility.
The Bank will continue to consult and cooperate with all relevant domestic and international authorities to ensure that the UK financial system can absorb any stresses and can concentrate on serving the real economy.
That economy will adjust to new trading relationships that will be put in place over time.
It is these public and private decisions that will determine the UK's long-term economic prospects.
The best contribution of the Bank of England to this process is to continue to pursue relentlessly our responsibilities for monetary and financial stability.
These are unchanged.
We have taken all the necessary steps to prepare for today's events.
In the future we will not hesitate to take any additional measures required to meet our responsibilities as the United Kingdom moves forward.
Source: Bank of England

In addition, despite statements of confidence from many in the industry, Brexodus has already begun. Last week, for example, investment bank Columbia Threadneedle announced that it has begun applying for regulatory permission to expand its asset management presence in Luxembourg, with plans to replicate U.K.-based open ended investment funds on its Société d'Investissement À Capital Variable platform as well as basing some fund managers there. Threadneedle thus joins M&G Investments, which is also making plans to build up its operations within the European Union. The main fear is that Brexit will detrimentally affect their distribution capabilities across the continent, though neither firm is yet considering relocating their offices from London.

“The flight from London might happen, but I have a feeling that since most financial services firms are very flexible and versatile, they’ll keep their London base and turn the exit into something positive, expanding trading to the rest of the world,” Howarth said. “A lot of countries—New Zealand, Canada, Australia—have already contacted the U.K. to arrange new trade deals.” Will an exit from Europe lead to expanded Commonwealth ties?

Prime minister David Cameron made a speech to the House of Commons on 27 June, announcing his intention to resign—so someone else will have to negotiate the Brexit he didn’t want. In the speech he noted that he had told the European Council that the United Kingdom would not be triggering Article 50—the clause that will initiate Britain’s exit from the union—at this time. He also announced that “the Cabinet met this morning and agreed the creation of a new EU unit in Whitehall [to oversee the exit]. This will bring together officials and policy expertise from across the Cabinet Office, Treasury, Foreign Office and Business Department.”

Nevertheless, the European Council has already met for the first time without British officials in attendance. “We’ve got two years,” said Howarth, “but the starting point is ‘what type of deal are we going to end up with?’ It’s likely that they will wait for a new prime minister before triggering Article 50. And the rest of the European Union might be trying to force the United Kingdom’s hand, but we are in control of the timetable. If they get angry that we are taking our time and want to make an example of the U.K. by giving us a worse deal then so be it.”

“Frankly, if they held another referendum this week, they’d get a completely different result,” added Howarth. “In fact, there is talk of a second referendum. There is a lot of pressure on Parliament but I still feel it’s unlikely they will act ‘contrary to the will of the people,’ despite the pressure from Scotland and Ireland.”

In a speech on 29 June, the secretary of state for the Department of Energy & Climate Change, Amber Rudd, stressed Britain’s commitment to fighting climate change, introducing renewable and clean energy systems, and boasted of Britain’s lead on these issues within Europe.

Nigel Lawson, a prominent Leave campaigner and former Tory Chancellor of the Exchequer now runs the Global Warming Policy Foundation, which announced that it thought the U.K. government was wrong to set in law a fifth “carbon budget” committing the UK to cut emissions 57 percent by 2032 from the levels of 1990. This goal was “based on the now incorrect assumption that the United Kingdom will still be in the EU by 2030”, the foundation said.

But many others disagree that the step—the standard five-year budget setting written into law by the 2008 Climate Change Act—was illegal. “You have to remember that in the regulatory environment the U.K is streets ahead of anyone else in Europe, so there might be businesses moving out but people want to keep that quality of environment.,” said Howarth.

In an editorial on Bloomberg, Mohamed El-Erian, the chief economic adviser at German financial services company Allianz SE, envisages what this will all look like in 2019. After three years, he imagines, things will have settled down but not after a series of economic and political spasms experienced not just by Britain and the EU, but also with negative spillovers into the global economy. But this is only one of the potential outcomes. The other he envisages: “which is equally probable, would be even worse political dysfunction, resulting in a global recession, intense financial instability, greater isolationist policies and worsening inequality of income, wealth, and opportunity.”

“What we may be looking at is some kind of ‘Norway Lite’,” concluded Howarth, “where we have access to the single market; but we are going to probably have to make concessions on the free movement of people. On the other hand, they’re already talking about Frexit and Nexit [France and Netherlands withdrawing from the union].”

One potential consequence comes over news that artists, including Abba and Coldplay, are saying Google’s YouTube service is “unfairly siphoning value” and have taken their complaints to Brussels. Once Brexit is accomplished, British pop artists like Coldplay won’t be able to ask Brussels for any such help. Abba, as a Swedish band, can continue to ask for all the help it needs.

Continue the conversation at Compliance Week Europe: 7-8 November at the Crowne Plaza Brussels. Join us as we look at changes in global anti-corruption regulations, slave labour risks in your supply chain, and how to detect fraud, to name just a few topics. Learn more