Get your free guide now cooperators.ca/generation-gap. Most of the regulatory responses. in the wake of the crisis were correct

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1 by Yaldaz Sadakova THIERRY CHARLIER/STRINGER/GETTY IMAGES As London constantly feels suffocated by what it sees as an overbearing Brussels, the relationship between Britain and Europe is anything but perfect. But after years of debate, Britain will vote on whether to break away from the European Union in a long-awaited referendum to take place this June. It s difficult to determine the impact of a potential British exit, or Brexit, on the country s financial industry and the foreign investors it serves. The terms of any exit would only become clear after a vote to leave. But speculation abounds and investors, including Canada s largest pension funds, are watching the debate closely. According to a report in the Globe and Mail last month, a senior executive at a large Canadian pension fund said the risks posed by the vote were part of the reason it had passed on a recent deal for an office property in London. Some economists insist a Brexit would be good for London because it would reduce the regulatory burden. But many London-based asset managers expect the regulations would remain in place even if Britain leaves and they worry about losing access to the European market. BenefitsCanada April

2 Most of the regulatory responses in the wake of the crisis were correct and went in the right direction. The key issue is whether the U.K. s partners within the European Union would be vindictive or constructive, says Andrew Hilton, director of the Centre for the Study of Financial Innovation in London. A Brexit could be liberating for Britain s economy and its financial industry, he suggests. But if we handle it badly, dreadful people like [European Commission President] Jean-Claude Juncker could decide, I m really going to nail the Brits. If Britain does opt to depart, it will take at least two years to determine the specifics of the new relationship between London and Brussels. European Union law stipulates a two-year negotiation period if a country leaves. The regulatory debate No matter what an exit deal looks like, Patrick Minford, a professor of applied economics at Cardiff University s business school, believes Britain s financial sector would do better outside of the European Union. There s a tidal wave of regulations sweeping in from the EU, he says, referring to things like bankers bonus caps and efforts to ban short selling. Many continental people don t have rigorous financial markets, so they don t have much sympathy with finance, he adds, suggesting it would be better for Britain s financial sector to have a market-friendly British government regulating it rather than a market-unfriendly Brussels. But financial industry representatives disagreed with that argument during submissions in January to the House of Commons on the financial costs and benefits of European membership. The tsunami of regulation post-crisis was a global phenomenon, not just a European one, said Jiri Krol, deputy chief executive officer of the Alternative Investment Management Association. Still, he admitted members of his industry are on both sides of the Brexit issue. Most of the regulatory responses in the wake of the crisis were correct and went in the right direction, said Krol. Increasing the capital in the banking industry was a necessary thing. Moving towards central clearing of derivatives transactions was something we supported because it improves the safety of markets. There are equally things which we felt went too far. For example, on the short-selling regulations, we disagree with some of the outcomes. But some of them were actually supported by the U.K. government as well, so we do not feel that there would be a different outcome some time in the future. Guy Sears, interim chief executive officer of the Investment Association, agreed. Some of the European legislation that came forward was derived from global commitments at the G20. De-risking derivative clearing and Get your free guide now cooperators.ca/generation-gap Unlock your team s potential 6 ways to manage a multi-generational workforce. The Co-operators used by Co-operators Life Insurance Company under license from The Co-operators Group Limited. Group benefit plans offered by Co-operators Life Insurance Company. For more information, please visit cooperators.ca/groupbenefits

3 There is something called the U.K. national interest. Our job is not to make it easy for everyone else in the world to enter the European market. looking at banks leverage were both matters where the EU was following the global lead, said Sears, speaking before the House of Commons as well. You mustn t forget the United Kingdom... has gone its own way and introduced its own regulation in some areas, which goes beyond that of Europe, or is tougher.... I do not believe there would be a significant reduction in the costs of regulation. In Sears view, the benefits of European Union membership outweigh the regulatory burdens. A major one, he said, is Britain s ability to sell financial services across the European Union. We have had considerable success within the single market, said Sears. It s true that a lot of entities set up shop in Britain to access the European market and they might relocate after a Brexit, Minford concedes. But if Britain loses access to that market, it would simply focus on other places, he suggests. There s something called the U.K. national interest. Our job is not to make it easy for everyone else in the world to enter the European market. Single-market scenarios Whether Britain loses access to the single market depends on the terms of any exit. Under the optimistic scenario, Britain would join the European Economic Area The vote on Britain s place in Europe has sparked a vigorous debate on both sides. as non-member countries like Norway and Switzerland have done, says Thomas Sampson, assistant professor of economics at the London School of Economics. Membership in that area provides full single-market access. Under the pessimistic scenario, Britain wouldn t join the European Economic Area. Then there would be bilateral negotiations between Britain and the EU over what kind of access Britain has, says Sampson. If it doesn t reach a deal, the default option would be to revert to relations governed by the World Trade Organization, he notes. So Britain would be just like any other country that s not a member of the EU but can trade with European countries under World Trade Organization rules but doesn t have any privileged access that comes with being a member of the single market. Ambivalence fuelled by fear Although many in London appreciate the benefits of a single market and oppose exiting the bloc, they don t necessarily like Europe. A recent survey of employees in finance by the London-based Centre for the Study of Financial Innovation found 49 per cent said they d definitely vote to stay in the European Union and 24 per cent said they d probably do so. Only 12 per cent said they d definitely vote to leave. Among those who said they d definitely or probably vote to stay, 31 per cent said the European Commission, the union s executive arm, was actively hostile to London s interests and 49 per cent thought it was neutral at best. The reason for those conflicting views is a fear of the unknown, says Hilton. BLOOMBERG/GETTY IMAGES (2) 38 April 2016 BenefitsCanada

4 Benefits Canada is pleased to introduce a new half-day conference in Toronto called Chronic Disease at Work: Autoimmune Disorders. This half-day conference will be the leading forum for senior-level decision makers in group benefits plans to discuss autoimmune conditions and their impact on the individual and the workplace. Learn about autoimmune conditions such as rheumatoid arthritis, psoriasis, crohn s and colitis from both a physician and plan member perspective. Experts will also share unique insights about the costs of chronic disease in your workforce and suggestions on how to better support your employees with chronic disease. Learn what it is like to work with these conditions, the impact they have on productivity and overall quality of life. This will help inform best practices for accommodating your plan members who have autoimmune conditions.

5 VICTORY OVER CLEARING HOUSES One of the benefits of European Union membership to the British financial industry has to do with clearing houses. Last year, Britain successfully challenged in court the European Central Bank s requirement that Londonbased clearing houses should move to the euro zone if they handle euro-denominated securities transactions. Britain said clearing euro-denominated trades only within the euro zone violates the single-market rules because it hinders the free movement of capital and services. London has a large market for clearing eurodenominated trades, so the city would have lost business. The reason the U.K. won is because it s a fullfledged member of the European Union, says Nauro Campos, professor of economics and finance at Brunel University London. Raise the bar. EAP Medical 2nd Opinion Disability Chronic Disease Healthcare Navigation It s not like going to a Chinese restaurant and saying, I have a choice between chop suey and chow mein. You re already deeply in the chop suey. It s a choice between something you know and something you don t know. People in [financial services] say, We know how to deal with the Europeans; we don t like them, but at least it s the devil we know. Even if they dislike Brussels, some financial firms are going as far as financing the pro-european camp. In January, Sky News reported that Goldman Sachs had made a six-figure donation to Britain Stronger in Europe, a group campaigning to keep Britain in the European Union. City insiders told Sky News... that other firms had also agreed to commit money [to pro-eu campaigns] in recent weeks, the outlet noted in the report. New deal for Britain Europe doesn t want to lose Britain, either. In February, the European Union and Britain reached a deal that would give it special status within the bloc. The deal addresses the treatment of the nine European Union countries that don t use the euro. Britain wanted an explicit recognition that the euro isn t the bloc s only currency and that, as a result, those outside of the monetary union wouldn t be at a disadvantage from decisions applying to the euro zone. When it came to that issue, the deal addressed concerns about bailouts of euro zone countries in financial trouble. Emergency and crisis measures designed to safeguard the financial stability of the euro area will not entail budgetary responsibility for Member States whose currency is not the euro, or, as the case may be, for those not participating in the banking union, the deal states. The agreement also mentions political integration. It seeks to reassure Britain that it doesn t have to further integrate with the rest of the European Union and notes that references to ever closer union do not apply to the United Kingdom. British Prime Minister David Cameron has said he s happy with the deal and has pledged to campaign during the referendum with his heart and soul to remain in the bloc. Yaldaz Sadakova is associate editor of Benefits Canada: yaldaz.sadakova@rci.rogers.com. Integrated physical and mental health services for employees. Learn more at yournurse.ca BenefitsCanada April