Reaction: Industry Welcomes Brexit Transition Deal But Warns 'risks Have Not Gone Away'

The agreement, which is conditional based on each side reaching a deal on a final withdrawal treaty, will enable a 21-month transition period after the UK leaves the EU on 29 March 2019, whereby a continuation of current laws and regulations would continue to be in place while the country unbinds itself from the bloc.

Brexit blog: UK and EU agree terms on Brexittransition deal

As part of the deal the UK will be able to reach trade agreements with other countries during the period while still being party to existing EU deals with other countries. In addition, the rights of EU citizens in the UK will be guaranteed, and vice versa.  

Importantly for financial services, it will also ensure ongoing recognition of passporting rights, data sharing and contract continuity.

EU chief Brexit negotiator Michel Barnier described the deal as a "decisive step" in the negotiations.

Andrew Pilgrim, director, financial services government at EY, said: "In the light of this important agreement, which will be welcomed by all parties and could significantly mitigate cliff edge risks, authorities now need to decide if they need to wait for formal ratification of the agreement before they can adjust their Brexit implementation requirements.

"This would provide the industry with certainty months ahead of a signed treaty and support the smooth and efficient functioning of financial markets."

Bill McQuaker, multi-asset portfolio manager at Fidelity International, said the transition agreement means UK equities could begin to look more attractive again with the "status quo" set to remain for the next three years.

He said: "[The deal] has helped sentiment on sterling, with the currency up against both the US dollar and the euro.

"That makes a change from the past six months, where sterling has been able to rally against the dollar, but remained largely flat against the euro.

"The implications for UK equity markets are multi-faceted. While investors should view this as a positive development for domestically exposed UK companies, the FTSE 100 has significant exposure to overseas earnings, and a stronger pound is therefore a headwind.

However, McQuaker said that while "there are opportunities in UK equities as a whole", "most fund managers are underweight the UK on the back of Brexit-related risks".

He added: "Those risks have not gone away - a bad deal would still be negative for the economy - but with the status quo now in place for at least another three years, and the UK traditionally a defensive market, UK equities might begin to look more attractive again."

Investment analyst at Thomas Miller Investment, Dan Smith, voiced concerns regarding the Irish border, which he said could still be a major obstacle in talks progressing.

He warned: "In any case, whatever outcome is agreed will amount to no more than a political commitment from both sides that has no legal basis, as it follows the principles of negotiations that ‘nothing is agreed until everything is agreed' - a result that still leaves a very uncertain business environment and may not prevent businesses from starting to act on their contingency plans."

Bank of England warns Brexit remains 'material risk' to financial system

Chris Cummings, CEO of the Investment Association, said the agreement was an "important milestone as it provides more confidence and certainty for business in the months ahead". 

He added: "While the draft paper may be subject to change, it shows that significant headway has been made on agreeing a transitional arrangement that meets the needs of the industry. We look forward to it being confirmed on Friday.

"It is time to get on with securing the best Brexit possible for savers and investors across the whole of Europe."

CFA Institute study

A CFA Institute member survey, released on 20 March, a day after the agreement was announced, showed the organisations members were less confident about post-Brexit.

The global survey of 65,000 members - 21% of which were portfolio managers - showed 63% of respondents thought firms in their local market would reduce their UK presence as a result of Brexit.

In addition, only 17% of UK-based respondents expected a "comprehensive" trade deal between the UK and EU27 on both goods and services as a result of negotiations.

It also showed 68% of UK-based respondents thought the competitiveness would deteriorate as a result of Brexit. However, that figure is down from 2016 and 2017 results, which showed readings of 72% and 70% respectively.