What Philly law firms are advising clients about Brexit
For now, the status quo will remain. The decision by United Kingdom voters to exit the European Union means the British government must now negotiate the terms of its withdrawal, which could take up to two years.
For now, the status quo will remain.
The decision by United Kingdom voters to exit the European Union means the British government must now negotiate the terms of its withdrawal, which could take up to two years.
The stakes are enormous for Europe and much of the world. London could lose its primacy as an investment center. Yet the effect on the U.S. economy will likely be small.
Certainly, the news rattled the stock market, which saw a 610-point drop in the Dow Jones industrial average Friday. Nine of the 10 main industries in the Standard & Poor's 500 slid, with financials reversing their strongest climb since April with the biggest drop in four years. Shares in banks, airlines, and auto-related companies were especially hard-hit.
Yet the Brexit vote, by forcing the pound and euro lower, made European vacations potentially cheaper for U.S. tourists.
In the United States, companies with trading relationships with U.K. firms can expect little change in the near term, said Jane Rosenberg, executive director of the British American Business Council in Philadelphia.
"Nothing will happen immediately," she said.
Similarly, Thomas Wilson, managing director of Wealth Advisory at Brinker Capital in Berwyn, said the economic impact of the U.K.'s pending exit is likely to be muted on these shores.
"The U.S. does not do a lot of trading with the U.K.," he said. "In fact, U.S. exports to the U.K. is only 0.3 percent of U.S. GDP."
But the U.K. and the EU will have to redraft agreements affecting a broad swath of industries, from life sciences and pharmaceuticals to financial services and data processing.
"I can't imagine a more complicated negotiation than what we face now," said Andrew Hood, a lawyer in London for Center City's Dechert L.L.P. who focuses on international trade and EU regulation. "We are telling our clients, nothing is changing immediately."
What lawyers like Hood are doing is presenting various scenarios to clients on how those negotiations might go and what the impact will be from one sector to the next.
London is Europe's preeminent financial services center, and hedge funds, investment banks, and other firms are already gaming out the possibility of moving operations elsewhere, says Hood, adding that he expects that London will continue to be a hub of international investment activity.
"If you are a hedge fund and can foresee moving to Ireland, why wouldn't you do that [planning] now?" Hood asked. Life sciences companies with research and development in the U.K. might lose out, since the EU targets significant research funds to labs in the U.K., he added.
William Yonge, a financial services lawyer with Morgan Lewis & Bockius, the Philadelphia-based firm with a large global footprint, said the long-term risk to banks and hedge funds is the loss of so-called "pass-porting" rights that permit them to do business with any of the EU member nations. Once licensed by the EU, they can avoid country-by-country licensing procedures within it.
But that privilege might disappear as the sides hash out their future relationship.
One way that the licensing privileges might be retained, Yonge said, is for the U.K. to opt for membership in the European Economic Area, a kind of junior membership in the EU, now held by Norway, Iceland, and Lichtenstein.
The EEA affords member states many of the same trade advantages as full membership in the EU, but without the ability to influence policy.
Yonge noted, however, that remaining EU members might be reluctant to afford the U.K. those privileges, lest other restive nations take that as a sign that they could bolt without significant economic pain.
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