Brexit has already had an impact on the U.K.’s standing in the wider financial markets, and Europe will continue to use “a combination of regulation, coercion and general anti-Brexit sentiment” — albeit justified — to move bits of financial services back to Europe. “Liz Truss taking over isn’t going to change that,” said John Roe, head of multiasset funds at Legal & General Investment Management Ltd. in London, citing the need for euro-denominated contracts to be cleared in Europe as an example.
But while there’s “huge uncertainty over the role of the U.K. in wider financial markets” because of Brexit, one school of thought that might support the U.K.’s future position could be akin to Adam Smith’s concept of the invisible hand, Mr. Roe said — the idea that, no matter the roadblocks, markets will find the most efficient way of functioning. It may be, he said, that “removal from all the red tape of Europe makes doing business via the U.K. in financial services the most efficient way.”
Ms. Truss has also highlighted potential changes to financial regulation, which could be interesting given her pro-growth and pro-U.K. stance, Mr. Roe added.
“There have been murmurings in recent years of the greater holistic benefits to U.K. pension fund members, for example, if they were investing in a way that improves their own communities, their own productivity and their own capital, and there are external benefits to those members and the U.K. generally that then go well beyond the pure investment returns,” Mr. Roe said. “So, her argument, which I think is not unreasonable, is if you can get similar returns inside or outside U.K., shouldn’t we be changing regulation to make it as efficient and effective as possible for U.K. investors to actually be supporting the U.K. economy?”
It makes sense also, Mr. Roe said, given that “we know foreign direct investment into the U.K. is likely to be reduced because of Brexit.”