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Johannesburg – The legal processes for the withdrawal of the United Kingdom (UK) from the European Union (EU) can only happen once government gives notice of its intention to leave. Notice has not been officially been given and there is a possibility that the UK might only leave the EU in 10 years, said Liam O’Connell, London-based litigation and dispute resolution lawyer from Norton Rose Fulbright.
O’Connell was speaking at the annual insurance seminar at the Norton Rose Fulbright offices in Sandton, on Thursday. He highlighted the impact of Brexit on the UK, South Africa and the insurance sector.
“No precedent has been set for Article 50. Some experts predict it will take 10 years before Brexit is fulfilled,” said O’Connell. It is impossible to indicate how long negotiating exit terms will take.
Given the number of treaties the UK is a part of, it will require the government to look at domestic law and determine which treaties to keep or not and how this will impact the trading position of different industries. The biggest concern is the impact on passport rights which will influence UK-based businesses ability to operate in EU countries.
Article 50, is the only legal way for a member state to withdraw from the EU. The EU council issues the guidelines for the negotiations around the terms of withdrawal and may not decide to negotiate until Article 50 is triggered.
There is still uncertainty on the impact of Brexit with the future relationship with the EU.
Before Brexit, the London insurance market was the largest global centre for commercial and speciality risk. It had the benefit of having passport rights to move freely within the European Union, having access to a market with over 500m people.
The Brexit referendum which took place on 23 June 2016 took place against backdrop of immigration problems. There was increasing pressures on national sovereignty and the existing anxiety of the EU’s interference in everyday affairs and the perceived bureaucracy, he explained.
Despite the fact that the referendum was non-binding and advisory in nature, newly appointed Prime Minister Theresa May is of the view that the withdrawal should take place. As a result a committee to oversee the withdrawal from the EU was put in place.
Impact on the UK
Following Brexit, Prime Minister David Cameron resigned. Global stocks lost $2tr in one day. Rates were cut from 0.5% to 0.25% and the pound tumbled to a 31-year low. The prospect of a second Scottish referendum had arisen. Various labour members of parliament resigned and Jeremy Corbyn, former leader of the Labour party, lost the no confidence vote 172 to 40.
Impact on the insurance industry
The EU legislation continues to apply for now. There is ability that UK-based companies may lose the ability to passport between EU countries. This means business structures must be revised. Insurance companies may have to establish subsidiaries or branches within these countries to trade.
EU insurers may become a more attractive home for investment than London, weakening the UK’s competitive position and resulting in job losses said, O’Connell. Whether London remains the “financial centre” of the world, depends on the terms of Brexit.
Impact on South Africa
The final outcome depends on the agreements reached. The weaker pound may impact the potential earnings of firms with significant operations in the UK, he explained.
Gold is becoming a more attractive asset, in the face of volatile equity markets. If trade agreements are renegotiated, the UK may have a weaker position to the advantage of South Africa.
Opportunities in the insurance sector are arising in emerging markets. Before Brexit, people were looking outside the EU for growth opportunities. The London market so far is limited, with surplus capital and low returns on investment, he explained.
These emerging economies have growth potential in the future, which is what companies are focusing on, said O’Connell. “We can see more investment by London-based insurers into Africa and Asia.”
