09-24-2016, 02:23 AM
In March 2015, the U.K. won a landmark Court of Justice of the European Union case against the European Central Bank regarding the clearing of euro-denominated securities and derivatives. It is a huge business, with the value of daily transaction turnover exceeding $1 trillion. Though the U.K. does not use the euro as a currency, the court upheld its privileges to clear the euro because it is part of the EU. Leaving the EU could therefore not only mean losing the business itself, but the ecosystem around the business, which often follows.
A U.K. exit might also limit the ability of London-based clearing banks to execute derivatives transactions with EU clients if the country fails to maintain the EU passport for financial services. And there is more. Especially since the crisis, financial services have become one of the most regulated industries.
The EU adopted considerable common regulation to ensure safe, supervised, and pan-European banking services. The City of London has been benefitting from this. Though a lot of the deals, for example, M&A, ECM (equity capital markets) and DCM (debt capital markets) are ‘sourced’ out of London, the real economy transactions take place in Europe’s strong economies like Germany and the Netherlands. Losing EU passport rights, deviating from EU regulation, disengaging from the Capital Markets Union will shift market players to the bigger piece of the pie (the remaining 27 EU countries) and away from the smaller slice (the U.K.).
Finally, the EU will stay an important market for the U.K. economy. To be able to export to EU countries the U.K. will have to fulfil EU regulation, but after Brexit they will lose the ability to influence EU regulation (e.g. emission rules for cars, regulation on food and energy efficiency rules on equipment)
How Brexit Could Boost the European Union - Knowledge@Wharton