Christopher Leonard is a partner in the London office of Akin Gump Strauss Hauer & Feld LLP. This post is based on an Akin Gump memorandum by Mr. Leonard, Ian Patrick Meade, and Tim Pearce. Related posts on the legal and financial impact of Brexit include Brexit: Possible Options and Impact, from Shearman & Sterling; Brexit: Legal Implications, from Sullivan & Cromwell LLP; The Day After Brexit, from Cadwalader, Wickersham & Taft LLP; The Legal Consequences of Brexit, from Davis Polk & Wardwell LLP; and Brexit: What Does the Vote Mean for Business?, from Shearman & Sterling LLP.
The decision to hold a referendum as to whether the United Kingdom (UK) should remain a member of the European Union (EU) introduced the term “Brexit” into the global political lexicon. Now that the UK has voted to leave the EU, the term has spawned new variations: will the UK’s departure be a “soft-Brexit” or a “hard-Brexit”?
Those advocating a soft-Brexit assume that the UK will be able to negotiate continued access to the EU’s single market in financial services, perhaps by agreeing to join the European Economic Area (EEA) (members of which accept certain laws of the EU, including in relation to financial services, in return for access to the single market).
If this turns out not to be possible, perhaps because EEA membership is simply not on offer or because the cost of becoming a member of the EEA is politically unacceptable (EEA membership entails the free movement of labour between EU and EEA member states, making a contribution to the EU budget and accepting laws over which the EEA member state has little say), the UK will have to contemplate the possibility of a “hard-Brexit,” in which it no longer has automatic access to the single market. Press coverage has assumed that UK financial institutions that currently rely on their EU “passports” to provide financial services to clients in the remaining EU Member States on a cross-border basis would have to relocate to a remaining member state.
