US financial services industry outlines Brexit concerns

Author: Edward Price | Published: 8 Dec 2016
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The US financial services industry has expressed specific concerns over the UK’s eventual exit from the EU, with the Securities Industry and Financial Markets Association (Sifma) describing Brexit as a test for the global financial system.

This past year, two seismic political events rocked the markets. First, the so-called Brexit vote which took place in the UK on June 23. The referendum result – to exit the EU – came as something of a surprise to markets, which hadn’t fully priced in the potential for a leave vote to win. Second, Donald Trump’s US election victory in November. After a negative initial reaction, markets took a second look and decided that the president-elect’s economic plans might actually work: his infrastructure spending plans, planned tax cuts and likely inflationary boost all enticed the markets to rise.

As such, Trump’s victory has not been interpreted as a negative event per se. There is a note of caution of course: industry in the US is generally taking a too-soon-to-tell approach. But the upcoming Trump administration, however, offers a least one further long-term gain for financial markets: a reappraisal of the US prudential regulatory framework and, potentially, a partial repeal of 2010’s Dodd-Frank Act. 

"We’ve seen a situation where the US has, in many cases, gold-plated regulation, particularly in the prudential space," said Kenneth Bentsen, president and chief executive of Sifma at the association’s annual state of the industry briefing in New York City on December 7.

"That is potentially disadvantageous to the US market," he said.

Brexit concerns

By contrast, any positive immediate implications of Brexit are a little harder to unpick.

In many ways, that’s a result of the sheer ambiguity surrounding Brexit. Unlike a presidential election, the UK referendum returned a negative mandate. In other words, the UK electorate instructed its lawmakers to end an existing relationship with the EU, rather than pursue the sort of specific new policy goals laid out during a presidential run.


  • The US financial services industry has expressed concerns over the UK’s eventual exit from the EU;
  • For Sifma, Brexit will present a serious test for the global financial system;
  • GMFA has written to the UK prime minister and European Commission to express its concerns;
  • US industry priorities for Brexit are preserving the efficiency of capital markets and robustness of global financial stability;
  • Sifma is however keen to stress that the terms of Brexit are a matter for UK-EU negotiators. 

That makes for uncertainty – and guessing games as to what comes next. One plausible scenario now is that the EU’s well-known kickback on the Basel Accords combines with the logic of the UK’s Brexit economy to create regulatory competition between the two jurisdictions going forward. According to Bentsen’s remarks, that’s a question for the UK and Europe to figure out as they negotiate the UK’s exit from the EU. But the US industry does have a view of the risks entailed.

"Our view is that particularly for asset classes that are truly global markets, cross-border coordination is hugely important," Bentsen said. The alternative is global friction, which can result in negative price and liquidity effects the world over. 

"We have deep and liquid capital markets...we should be careful to not impair that with the rules that we put in place both domestically and cross-border," he added.

Dear prime minister

Bentsen’s comments follow a letter sent by the Global Financial Markets Association (GFMA), the umbrella body for Sifma and the world's other leading financial trade associations, to British prime minister Teresa May and European Commission president Jean-Claude Juncker on November 23. That letter laid out the core concerns of the US financial services industry with regard to the UK’s eventual EU exit.

"Brexit will be a test of a different order for the global financial system…likely to create an unparalleled shift in the structure of financial services activity in Europe," the letter reads, highlighting how that shift will impact capital markets in particular. The letter also makes clear the US industry’s two Brexit priorities: preserving the efficiency of European and global capital markets, and supporting global financial stability.

"Brexit will be a test of a different order for the global financial system"

At the Sifma event, speakers were also quizzed on the association’s priorities for the year ahead. Those include reiterating Sifma’s interest in a European-style call for evidence on regulatory impact, the importance of a single fiduciary rule, ensuring the Securities and Exchange Commission (SEC) recognises the important role asset managers (AMs) play in the capital formation process, as well as keeping a close eye on market liquidity as the Fed hikes its policy rate ever upward during 2017.

Trump’s election victory resulted in a political mandate, albeit one derived of the Electoral College system rather than the popular vote. That mandate could well result in an improved US business environment. Brexit presents no such easy gains. Instead, it entails little more than the start of some long, risk-laden and difficult UK-EU negotiations. Suffice to say the US industry is concerned that, as a result, Brexit doesn’t spell either global regulatory incoherence or financial fragmentation in 2017 and beyond. 

See also

King: no need for international framework
Regulatory regionalism expected in 2017
FCA won’t support post-­Brexit deregulation