A vote to leave the EU could have a profound impact on financial services regulation in the UK. Financial institutions (including banks, investment firms, insurers, insurance intermediaries, fund managers, mortgage and consumer credit firms and payment services providers) that have cross border operations would be impacted by a change in the regulatory regime they operate under. The extent of this impact would of course depend on the success of the Government's negotiations with the EU.
EU law is the bedrock of financial services regulation in this country and a Brexit would raise huge questions of the UK legislature. Lawmakers would be faced with the task of deciding whether to replicate or diverge from the current state of affairs that has seen decades of enormous effort and investment in implementing EU law. For example, the EU's capital requirements regulation (and all other EU regulations for that matter), which is directly applicable in the UK, would cease to apply on a Brexit and would need to be re-assessed and re-enacted in the UK if it was to continue to apply.
Many assess the biggest benefit of the single EU regulatory framework as the 'passporting' regime and a number of the world's biggest financial institutions have adopted a business model based on passporting their EU-wide operations from the UK. The UK is the EU's largest financial centre and financial institutions are currently able to take advantage of the ability to 'passport' their services around the EU without having to establish expensive fully-fledged local operations in other member states. When combined with London's advantageous time-zone, access to talent and capital, it is seen by many to be a draw to the UK for jobs and investment. It remains unclear if a similar regime would exist if Brexit was to win-out and it may result in restricted access to EU markets by firms based in the UK. It could also raise expensive questions of where firms should base their operations.
Having to relocate operations would unlikely be the end of firms' investment and strategic considerations. Product terms, distribution agreements and marketing literature would likely need to be reviewed to consider whether these need to be amended or replaced as a result of any regulatory separation.