DEAR UK PRIVATE FUND MANAGERS,
You may well be wondering about next steps for the UK after Brexit. If so, then studying Switzerland’s experience with the EU since it voted against membership in 1992 provides insights on options, timeline and lessons learned.?On 6 December 1992, the Swiss people surprisingly – and narrowly (50.2 percent) – rejected EU entrance in a public referendum. Since 1994, the Swiss government has negotiated 10 bilateral agreements, cementing Switzerland’s “special” relationship with the EU.? The 10 agreements, however, are mutually dependent: a violation of one nullifies all others (a “guillotine clause”). Beyond having to adhere to EU rules and regulations without having a say in their making, Switzerland also contributes hard cash to the EU budget.
Overall, this “half in” approach managed to bridge the gap between the mandate of the 1992 referendum and the demands of Switzerland’s economic reality – the EU accounts for over half of Swiss exports and nearly three-quarters of Swiss imports.??
In 2014 the Swiss people voted against “mass immigration” (again narrowly). The free movement of people is a pillar of the single market and is also enshrined in the first bilateral agreement. Since that vote, Switzerland finds itself in a bind, since applying the decision means nullifying the bilateral agreements along with more than 200 trade agreements painstakingly negotiated over more than two decades. The EU’s negotiating strategy since the 2014 referendum essentially amounts to stonewalling on all open issues as long as the issue of free movement is unresolved.??
Three lessons can be drawn: ??
1. There is no cherry picking; now more than ever, the core EU countries are focused on cohesion. The message today is clear: if you want access to the single market, you need to follow all the rules.??
2. The timeline is years and possibly decades; there will be no quick fix, regardless of the approaches being discussed in Britain. The EU will be focused on hopefully reforming – or at least salvaging – what is left of the single market. The UK will not have a willing and ready negotiating partner on the other side of the table.
3. Expect multiple cans to be kicked down the road. Those on either side of the negotiating table do not have a mandate to give much away. The process will require pragmatism and compromise, both of which are in short supply. Be prepared for volatility amid the inevitable fatigue.??
So what should a UK private fund manager do now? The phrase “keep calm and carry on” is a good place to start. However, you will need a contingency plan which will evolve as the post-Brexit picture gradually gets clearer.
As Darwin discovered, it is not necessarily the fittest or strongest that survive: it is those most able to adapt. Although the negotiating process has been a rollercoaster ride, Switzerland has managed to retain a flourishing financial services industry through the years of uncertainty.
Good luck, London!?