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BREXIT – What Next?
Jun 29, 2016

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Commentary by David Chitty, International Audit & Accounting Director, Crowe Horwath International

On 23 June 2016, the United Kingdom voted to leave the European Union (EU).

Market reactions have shown this vote has far reaching and global implications. The United Kingdom's exit from the EU (referred to as "Brexit") will now involve complicated and highly political negotiations, and could take some time to complete. Initial market reaction could, in part, be put down to this uncertainty.

Brexit gives rise to many practical questions for businesses and investors. Crowe Horwath International's UK member firm, Crowe Clark Whitehill LLP, has set up a Brexit Hub that presents commentary on short term and long-term issues facing the UK. The content of the Hub will evolve as the UK's negotiations with the EU progress towards a conclusion and the questions that give rise to the current uncertainty start to be addressed. In addition, Crowe Horwath International is introducing a global hub that presents articles and commentaries on the issues facing those businesses and investors that are looking to work with the UK and the EU, as well as businesses and investors in the continuing 27 Member States.

For the time being, the UK remains a member of the EU, and continues to participate in its decision-making processes. For the UK to leave, the UK Prime Minister has to invoke Article 50 of the Treaty of Lisbon (the Treaty that forms the constitutional basis for the EU). The EU cannot ask the UK leave. Once Article 50 is invoked, negotiations will then take place over the terms of the UK's exit from the EU and its relationship with the EU after the exit. Article 50 states that the negotiations have to be concluded within two years of the Article being invoked. Theoretically, this period of negotiations could be extended.

It may be some time before Article 50 is invoked. David Cameron, the UK Prime Minister, has announced his resignation. His political party, the Conservative Party, is beginning a process to select a new leader, who will become Prime Minister. The new Prime Minister should be appointed in early September. No meaningful discussions about the future relationship between the EU and UK are likely to take place until the new Prime Minister is appointed. Even then, it is possible that extended discussions will take place before Article 50 is formally invoked. This means that the UK could remain a member of the EU until 2020 or later.

There is no doubt that Brexit has implications for the future of the EU, including the structure and political direction of the Union, as well as confidence in its economic aims. Other Member States may seek to renegotiate their terms of membership. The absence of the UK may have an impact upon how the EU develops and applies its policies.

Businesses and investors should closely monitor the negotiations between the UK and the EU from both sides. It is important to understand what each side is thinking.