The Irish border issue shows how tortuous the Brexit process will be and how easily talks could​ collapse. Worried bankers should study a new report on what happens if there is no deal, writes Brian Caplen.

No transition is necessary and the cliff edge is a fallacy. Brexit gives the UK the opportunity to free itself from an overly-prescriptive EU rulebook. 

These are not the ideas of one of the cavalier Brexiteers, such as foreign secretary Boris Johnson, who currently run the UK – in which case they could be safely dismissed as hot air.

They are the views of Barnabus Reynolds, head of the financial advisory practice, at Shearman & Sterling, as set out in a new report called The Art of the No Deal. 

​​He argues that under three supra-national legal regimes, including the European Convention on Human Rights, contractual rights from financial contracts will be protected if the UK leaves the EU without a deal. Mr Reynolds warns that a transition period may distract from the ultimate goal of putting new arrangements in place and could bring the UK within the remit of the eurozone’s proposed financial transactions tax.

He adds that since the financial crisis the EU has become over-regulated in a way that makes the system less safe. “The EU federal authorities… have introduced rulebooks constituting minutely detailed operations manuals for regulators and businesses which lack flexibility and often bring unintended consequences. Despite this, inconsistencies of supervisory approach have remained, leaving the system in a dangerous state and prone to systemic risks,” writes Mr Reynolds.

So far so contested, and there are as many strong arguments on the opposite side. But what sets The Art of the No Deal apart from other Brexit literature is the extent to which it considers practical solutions to operational problems.  

It lists the following ways that business can continue to be done in a no deal environment – reverse solicitation, trust models, utilising EU affiliates or third parties to introduce or refer EU clients, or entering into transactions with EU clients which are then given up to UK entities.

On the issue of deregulating the UK, Mr Reynolds finds himself in the surprising company of arch-remainer Bank of England governor Mark Carney. Mr Carney has said that post-Brexit caps on bankers’ bonuses could be removed as could some insurance regulations, while it would also not be necessary to apply all global banking rules to building societies and challenger banks.

After the upheavals of the past decade, Brexit is the last thing banks need. But putting that aside and adopting Zen-like calm, it is possible to see solutions to the problems and even some opportunities.

Brian Caplen is the editor of The BankerFollow him on Twitter @BrianCaplen

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