Leave decision: implications

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November 2016

UK Prime Minister Theresa May was quick to establish the structures she believes necessary to steer the UK through the Brexit process following her appointment in July 2016, herself appointing prominent Brexit supporters to the key cabinet position of Foreign Secretary, and the newly created roles of International Trade Secretary and Brexit Secretary. George Osborne, the Chancellor of the Exchequer in the pre-Brexit government and prominent Remain campaigner, was replaced by Philip Hammond, also a Remain supporter. This team is charged with determining the UK's negotiating stance and global positioning post Brexit, and is currently taking soundings and input from across all sectors of the UK business and politics. Insight is participating in this process through its ongoing engagement with key stakeholders in the financial services, investment and pensions industries, and is supporting the Investment Association (IA) in its Brexit-related activities.

The Prime Minister has publicly stated that she expects the UK to negotiate a "sensible and orderly departure" from the EU, with the Government to negotiate without providing a "running commentary". Although the procedure for executing Brexit remains under challenge both in the courts and in Parliament, it seems unlikely that the UK Government will provide a statement of its negotiating objectives any time soon.

What has become clearer though is the timing of when the UK government would likely begin the Brexit process, with Mrs May announcing on 2 October that she intends to trigger Article 50 of the Treaty on the European Union by the end of March 2017, subject to the outcome of judicial hearings. This would set in motion a two-year process for leaving the EU, with a "Great Repeal Bill" to follow which would remove the European Communities Act 1972 from the statute book and enshrine all existing EU law into British law. The repeal bill - which won't become effective until the UK leaves the EU under Article 50 - will enable Parliament to amend and cancel any unwanted legislation and also end the jurisdiction of the European Court of Justice in the UK.

While there remains a great deal of uncertainty with regards to the final outcome of the negotiations, Insight will continue to track, monitor and - where practicable - influence the nature of these negotiations with a view to mitigating the impact of the UK's leaving on our clients, employees, shareholders and other stakeholders. It is anticipated that this will involve engagement both directly with opinion formers and via representative bodies such as the IA as we seek to work with the Investment Industry on this to gain the best outcome for our clients.

In the meantime we will continue to build upon the cross-functional impact analysis already undertaken, modelling the impacts on each area of our business as and when new information becomes available. To date this analysis has gone beyond the three possible future engagement models suggested by the UK Government and instead looked at a cross section of five realistic end scenarios. At the time of writing it seems less likely that the resulting relationship with the EU will be along the lines of the closely coupled, Norwegian model (ongoing membership of both the EEA and EFTA), but that a looser, more bespoke relationship will emerge.

Our analysis on each of the likely EU engagement scenarios has considered such things as the impact on clients globally as well as in the UK and Europe, our ability to continue to distribute within Europe, our ability to continue to run existing and proposed investment strategies (including our ability to continue to trade with our existing counterparty panels), and any operational issues, including our use of outsourced services. We believe that we continue to be well placed to respond to any of these models, or indeed any hybrid of them, and that our existing business model means that Insight is likely to be one of the better placed UK-domiciled investment managers to respond to this challenge.

In the meantime, the UK continues to be a member of the EU and as such will continue to operate within the existing framework and obligations that come with this membership, as we have done so for many years. We expect this situation to remain unchanged for a minimum of at least the next two years following the triggering of Article 50 which, as noted above, is now expected by the end of March 2017.

Considerations concerning some potential engagement models

Considerations concerning some potential engagement models

Source: Insight Investment

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