Spotlight on… Brexit update

On Wednesday 29 March 2017, the British Government formally began the process of exiting the European Union (EU). The UK will cease to be an EU Member State on 30 March 2019 at the very latest, and negotiations are underway to determine both how the separation will take place and what the new relationship between the UK and EU will be. Regardless of the outcome of the negotiations, the ability of Jersey’s finance industry to access the EU as a third country will remain unchanged, and the UK remains our largest trading partner for financial services, with the importance of the relationship recently recognised in two UK Government reports into the implications of Brexit for the Crown Dependencies. As well as monitoring the situation, Jersey Finance is also in close contact with both UK trade associations and the Government of Jersey to ensure that the industry's interests remain front of mind.

Jersey's position: an overview

On Thursday 23 June 2016, the British electorate voted in a referendum to leave the European Union and Article 50 of the Lisbon Treaty was triggered on 29 March 2017 with notification that the UK wished to end its position as a member state.
Jersey has no direct hand in the negotiations for a new framework of relations between the UK and the EU, although it is actively fostering close relationships with the UK decisions makers and influencers. 
When the UK leaves the EU, the United Kingdom’s Act of Accession will cease to be in force, and therefore Protocol 3, which sets out Jersey’s relationship with the EU will also cease to be in force. However, Protocol 3 only relates to trade in goods and does not cover services. The finance industry provides services to the EU based on third-country agreements which are independent of Protocol 3 and should not be directly affected by Brexit. 
The uncertainty of the outcome of the negotiations are expected to lead to periods of volatility in the financial markets, but history has shown that Jersey has dealt well with this in the past and will do so again.
Given the UK is our closest and most significant trading partner, there will undoubtedly be implications in terms of both risks and opportunities for the Island’s finance industry which is estimated to facilitate investment flows into the UK and the rest of the EU to the tune of some £800 billion. However Jersey interests are being well represented and are in line with the interests of the City of London.
 

Reports

In March 2017, the UK Government issued two reports into the implications of Brexit for the Crown Dependencies.
The House of Lords European Union Committee report, published on 23 March, concluded that the Crown Dependencies had three ‘intertwined and potentially conflicting priorities’ in regard to Brexit negotiations:
-    Maintenance of our centuries-old constitutional relationships with the UK;
-    Retention of the benefits of the existing relationship between the Crown Dependencies and the EU after the loss of Protocol 3; and
-    Developing their own international identities, while respecting the UK’s constitutional obligation to represent us in matters of defence and international relations
The report also acknowledged that the UK Government had a constitutional responsibility to represent the Crown Dependencies’ interests.
The House of Commons Justice Committee report, published on 28 March, concluded that the primary priority in the aftermath of Brexit was the preservation of the relationships between the Crown Dependencies and the UK. 

 

What you need to know

•    Prime Minister, Theresa May, has commenced negotiations with the EU in relation to the British exit.
•    The two-year negotiation window will last until 30 March 2019, but in terms of legal status the UK will remain a member of the EU until then.
•    As a British Crown Dependency, Jersey’s constitutional relationship with the UK will not be affected by Brexit. 
•    The UK Government has stated that the primary priority for the Crown Dependencies’ is to preserve their existing relationships with the UK. 
•    The UK Government has acknowledged it has a constitutional responsibility to represent the interests of the Crown Dependencies during Brexit negotiations, even in the event that there is a divergence of interests during the negotiation.
•    It is not envisaged that Brexit will impact on Jersey’s existing market access rights to the EU for financial services. As a "third country" for financial services, Jersey typically accesses the EU market through its own bilateral agreements which are independent from the UK's relationship to the EU. EU legislation provides for third country access where the Island demonstrates equivalent standards.
•    Jersey’s finance industry is in a strong position:
        - We have a strong relationship with the UK, our largest trading partner
        - We are enhancing overseas awareness of Jersey in the Middle East, Asia, Africa and the USA 
        - Jersey’s reputation for good governance continues to be recognised by independent international authorities 
        - Jersey Finance is strengthening our competitive position through research and innovation 
•    Jersey is a world class international finance centre, and uncertainty in the European market has little impact on opportunities elsewhere. We embarked on the journey the UK is about to begin a decade ago because we could see the demographic slowdown and public finance strains in Europe coming. So whilst continuing to nurture our traditional business sources we pushed out into the growth markets with the result that now half of the investment we handle originates from outside of the UK time zone. 

•    Jersey remains an attractive jurisdiction, and provides certain market access to both Britain and the EU for financial services during the period of Brexit uncertainty. This is achieved through bi lateral cooperation agreements that are independent of the Brexit negotiation.
 

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