Once the United Kingdom has left the EU, it will most likely implement a bilateral ‘Swiss model’, according to a survey of institutional investors, which also showed financial passporting rights are of greater concern to them than restrictions on immigration.
FTI Consulting surveyed 154 global institutional investors, which control more than $10 trillion in assets between them.
Over three-quarters of respondents said that there will indeed be a Brexit and the UK will leave the EU. More than half (58%) said that the outgoing member state would broker a bilateral agreement with the EU, in the same vein as Switzerland’s.
There was an overwhelming consensus that the UK will go for a Swiss model rather than an EEA or WTO agreement. Only 14% and 11%, respectively, thought it more likely that Theresa May’s government would go down this route.
Louise Harvey, the chair of FTI Consulting Brussels, said that “the shape of trade rules between the UK and the rest of the world is a £1 trillion question,” referring to the amount of trade Britain gets through every year.
In terms of what impact Brexit will have on the UK, only 52% thought it likely that Britain will lose its lucrative financial passporting rights, while a resounding 80% said that immigration restrictions will apply once the UK is out of the bloc.
However, 68% of those surveyed said that they are concerned about the passporting issue, while barely half said that immigration constraints worried them.
Passporting allows a firm registered in the EEA to carry out its business in any other EEA country without having to seek approval in every one of them. Multinational companies see it as an invaluable asset in doing business cross-borders, as it significantly cuts the amount of red tape involved.
The prospect of the UK losing its rights has prompted fears that London will lose its status as one of Europe’s major financial hubs, as companies and banking institutions will up sticks to the mainland.
Swiss model popular among investors
Which kind of deal the UK will go for during its negotiations has long been a topic of discussion. Before the 23 June referendum in the UK, many in the Leave camp touted the Norwegian model as a viable option.
But the Swiss model is clearly popular among investors, as evidenced by the survey’s results. Switzerland, which is not part of the EEA, has had to negotiate some 100 bilateral agreements so as to ensure it can access the EU’s markets and associated agencies like Europol.
The first major trade negotiations took eight years to conclude, well above the two years that the UK has to reach an agreement with the EU, once it triggers Article 50.
This is a package deal that covers not only the internal market but also issues such as the free movement of workers. The whole agreement was thrown into flux by Switzerland’s decision to curb free movement of workers.
British hopes of a precedent being set by the Swiss on free movement and single market access were obliterated in September when Bern decided to scale back its plans to curb EU immigration, instead plumping for local preference on job hires. The plan will be debated later this year in December.
The decision on future UK-EU relations will not rest entirely in Britain’s hands and it could be more a question of Westminster accepting what it’s given.
Trade has, unsurprisingly, emerged as one of the most pressing factors of the lead-up to the negotiations, which Theresa May has promised will start at the end of March 2017. The UK’s total trade volume was £1.065 trillion back in 2014, with 48.79% of that being with the EU.