Policy Papers

Capital Controls: Preparing for the Unthinkable

The idea of capital controls being implemented in a major developed market economy such as the UK seems improbable, but there are two events on the horizon which could cause such action to be taken and encouraged us to think about these risks:

  1. A cliff-edge Brexit. The recent agreement for a transition period was disappointing in that it is conditional on there being a full withdrawal agreement. This conditionality raises rather than reduces the chance of a cliff-edge. An unprecedented event such as this provides no historical comparison with which to guide us, but in the paper we explore the imposition of capital controls elsewhere.
  2. A Labour government. NCI is apolitical, but an independent, objective assessment of some of the policies currently being suggested by the Labour Party increase the risk of capital flight. We discuss these policies and the potential ramifications.

NCI cannot predict the probability of either event, but good risk management requires assessment of all types of risks, even those perceived to have a low probability of occurring. This paper is intended to provide members with food for thought, a trigger for some contingency planning should we be faced with the imposition of capital controls in the UK (or elsewhere for that matter). We assess the impact on the asset management industry, its customers and suppliers, the clearing and settlement process and we’ve used the case study of a UK fund vehicle with a global investment mandate to outline some key operational issues and provide suggested remedies which members and their customers should consider.

Jamie Carter

Chairman, New City Initiative Chief Executive, Oldfield Partners