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JWG Calculates the Regulatory Costs of Brexit

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If you are still considering which way to vote in tomorrow’s referendum on UK membership of the European Union, the regulatory implications of exiting the union may be enough to sway your decision.

Research by independent think-tank JWG suggests Brexit could mean a decade of uncertainty across markets, a significant increase in red tape and a regulatory change cost of £17 billion over the next 10 years.

Presenting at a recent FISD event, Dan Simpson, head of research at JWG, described what Brexit could mean for financial services businesses. He said rewiring EU and UK governance systems will raise a large number of known knowns, known unknowns and unknown unknowns, and noted that with G20 regulatory reform in process, Brexit will add another layer of confusion for UK businesses.

To counter these issues, business infrastructure needs to be flexible enough to go above and beyond current obligations, and heads of operations need to identify the impact of change on their infrastructure and develop rapid action plans. From an operations perspective, vast changes will be needed for everything from trader workflows and risk calculations to management controls and client and vendor agreements.

Looking at the regulatory change costs of Brexit, Simpson described three waves of change. The initial wave, from 2016 to 2019, would see UK regulators shaping new rules, while the second wave, from 2019 to 2022, would rewire EU infrastructure. The third wave, from 2022 to 2026, would rewire global infrastructure, including reconciling new rules to global standards. The expected cost of each wave of regulatory change averages at around £5 billion, suggesting a total cost in the range of £15 billion to £20 million.

Simpson concluded: “Brexit may mean that no aspect of business will be left untouched as processes, policies, operating models and business models all shift borders and boundaries under what could become the largest scale change management project ever undertaken by the UK.”

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