Over the course of the last few weeks, those who favor #Brexit have argued that: (a) more than 70% of the UK’s law is made in and by the European Union, often by un-elected officials; (b) on 58 separate occasions, the UK has voted against a proposed European law, but the law’s been agreed and imposed on the UK despite its objections; (c) the only way the UK can properly recover its parliamentary sovereignty, is to leave the European Union; and (d) the City of London will thrive, in or out.

Each of these assertions is wrong or misleading, as a matter of fact or law. Here’s why:

(a) more than 70% of the UK’s law is made in and by the European Union, by unelected officials

To the potential surprise of those who work in financial services, a heavily regulated area, where almost everything seems to come from, or to have been influenced by, the European Union:

  • House of Commons Library Research shows that only 13.2% of the UK’s primary and secondary post-1993 legislation implements European law in some way; and
  • Research by Full Fact, an independent fact checking charity, shows that this figure may reach 62%, if directly applicable European Regulations are taken into account as well.

However, as the House of Common Library and Full Fact have both freely admitted, each of these figures is misleading. The 13.2% only tells us how many pieces of UK primary and secondary legislation have been used to implement European law (i.e. its Directives), it doesn’t tell us how much of the UK’s law comes from the European Union; and the 62% figure includes every directly effective European Regulation, although many of those regulations have little or no practical effect in or on the UK. (For example, the European Union’s tobacco farming regulations are directly effective in, and therefore part of, UK law – but few (if any) UK businesses have to comply with them because tobacco isn’t farmed in the UK.) So, whilst “13.2% is likely to be too low, in reality … 62% is much too high“.

Even that isn’t the whole story. For example, for many people, the number of laws matters less than the nature and effect of those laws, and the extent to which the UK has been able to influence their development.

Sometime European financial services law takes the UK’s existing law as its starting point, and then seeks to improve and apply it uniformly across the European Union. Where that’s the case, the law has much less effect on the UK than it might otherwise have had; and the EU-wide uniformity of application delivers material competitive advantages for UK businesses and consumers. Solvency II, the Insurance Mediation Directive, and the Insurance Distribution Directive all seem to fall into this category of European financial services law.

In many cases, the UK also “holds the pen”, or it’s able to influence European policy making in other ways and to such an extent that the European law that eventually emerges meets the UK’s policy objectives in some or all respects. CRD III, CRD IV, Solvency II, MiFID, MiFID II, the Distance Marketing Directive, the E-Commerce Directive, the E-Money Directives, and the Payment Services Directives all seem to fall into this category of European financial services law.

There are exceptions to prove this rule: the cap on bankers bonuses, and the AIFMD, are clear examples – but it’s hard to see, at least at an aggregate level, how these dis-advantages outweigh the benefits of all the rest.

In addition, these laws are almost always made by, or under the delegated authority of, the European Parliament and Council. The UK directly elects 72 Members to the European Parliament, and that’s almost 10% of the total number of MEPs in the Parliament (the Lisbon Treasury fixes the maximum number at 750). The Council is made up of government ministers, so the UK is also represented by directly-elected individuals there too. Although MEPs and Council members, the Parliament and the Council, all use un-elected staff to help them carry out their legislative and other functions, these staff cannot and do not make European policy or law. It is therefore difficult to see how it can reasonably be said that UK and European law is being made by un-elected officials somewhere in the European Union, or somewhere in the European Union’s law and policy making machine.

(b) on 58 separate occasions, the UK has voted against a proposed European law, but that law has been agreed & imposed on the UK regardless

This is true – but it doesn’t represent the whole picture.

Between 1999 and 2014, the UK voted against 58 legislative proposals in the Council. However, the majority of the Council voted for those laws, so they were made and became part of the European Union’s law, in the same way that they would become part of the law in any other representative national or supra-national democracy. Over the same period, the UK voted in favor of 2,466 proposed laws, and they’ve also been made and become part of the European Union’s law – sometimes, no doubt, in the face of objections by, and against the national interests of, one or more of the other Member States of the European Union, but to the possible benefit of the UK.

It’s also worth noting that the UK sometimes votes against a legislative proposal for political or other reasons – not because the law is somehow contrary to the UK’s national interests. And it sometimes votes against a proposal because it objects to a small part of that law, but it would still prefer the whole of the proposed law to be made, than abandoned.

It’s probably not therefore true to say – as the #Brexiteers seem to imply – that on 2.4% of all occasions, the European Union has made and foisted a law on the United Kingdom, despite its objections, and that the relevant law has been against, or it’s somehow undermined, the UK’s national interests. No doubt that has happened to the UK (and some or all of the other Member States) on some occasions, but the true proportion is almost certainly less (and perhaps much less) than on 2.4% of all of the occasions when a European legislative proposal has been before the Council.

(c) the only way the UK can properly recover its parliamentary sovereignty, is to leave the European Union

The UK’s Parliament is (still) sovereign. Parliament didn’t lose its sovereignty when the UK joined the European Economic Community (as it then was), and it won’t regain its sovereignty if the UK chooses to leave the European Union (as it now is).

If Parliament did lose its sovereignty when the UK joined the EEC, and it needs to leave the EU to regain that sovereignty, because entering into a Treaty means surrendering (rather than pooling) sovereignty (to the mutual benefit of all participants), the UK would also need to cancel or withdraw from the 2,500 or so other international treaties it’s entered into, and is still bound by.

(d) the City of London will thrive, in or out

The City of London is thriving today at least in part because it’s home to so many different international financial services businesses. Some of these businesses have UK origins, but trade internationally. Others have (so called) 3rd-country origins, and they’re in the City of London because they want to carry on their business in English, to record their transactions in £-sterling, and trade across the European Union using the “passport” provided by European law. Some of these businesses are also engaged in Euro-related exchange and other activities, which the Euro-zone countries would pull into the Euro-zone area, if they could.

If the UK voted to leave the European Union, the “passport” would be lost, and fresh attempts would be made to pull Euro-related business into the Euro-zone area.

The UK might be able to negotiate new passports, and it might be able to stop Euro-related business being pulled into the Euro-zone (or at least back into the European Union, so that it’s at least subject to Union law) – but neither of these things will be easy; and success might not look like success: UK domiciled businesses trading into and across the European Union would still have to comply with European financial services law, or the UK’s 3rd-country equivalent legislation, although the UK would lose its ability to influence the way in which those laws developed. For competitive and other reasons, new European laws might genuinely be against the UK’s national interests, if only because the Union and its members will want (or need) to make laws that meet their objectives, not ours. If this is what happens, it’s hard to see an upside from #Brexit = whilst the potential downsides are more than apparent and real.

Perhaps the real “kicker” rests on what the UK Government and regulators will do, if their hands are untied by #Brexit. It seems reasonable to suppose that CRD III and IV, and Solvency II will be abandoned, if that can reasonably be done. But that isn’t necessarily good news: the PRA and Bank of England regard them as too complex, and insufficiently conservative, so higher capital requirements, more restrictions on the use of internal models, and more supervisory oversight could easily follow. The AIFMD might also be abandoned, and that would certainly help alternative investment fund managers if they’re domiciled or raising capital in the UK – but not if they want to raise capital in the European Union as well.

It is therefore easy to imagine some UK domiciled businesses moving “back” into the European Union, if there’s #Brexit and a new passport cannot be secured. If that happens, anecdotal evidence suggests that the City of London, the businesses that serve the City and the UK Exchequer will gradually lose income and jobs to Dublin, Frankfurt and Luxembourg City. We must therefore be careful what we wish for, and how we vote.