Financial services

Brexit’s impact on financial services

Paul Garbutt Paul Garbutt

It is a period of significant change for the financial services sector. How we manage the change over the next two years will either enhance the UK’s competitive advantage or leave it struggling to maintain its place in global markets.

It has never been more important “to plan for the worst and hope for the best”. Trading with Europe is likely to be more difficult, more expensive and more time consuming than ever before.

The country is slowly getting to grips with the process of leaving the European Union.  See Brexit: the vision, the process and the impact

Over the past seven months, companies have re-evaluated their business strategies and questioned if they still want to conduct business in Europe. Conversely, European-based financial service groups have been assessing if they still want to operate in the UK and what that structure could look like.   

Preparations for the triggering of Article 50 have included re-evaluating the markets in countries outside of Europe, and in particular when they become attractive propositions.  

Some structural and operational changes for consideration include:

  • Ensuring the robustness and integrity of this project. Including managing the objectivity of decision makers and emotional biases in teams.
  • Understanding the extent Brexit’s exposure requires detailed and accurate information to assess strategic clients, scope of service, new legal requirements and contracts, interaction with counter-parties, operational and employment changes as well as the integrity of client data and data protection laws.  All of this needs consideration in relation to revenue exposure, the cost of capital and funding.
  • Familiarisation with local EU regulators is essential to assess additional cost, the timing of authorisation and ongoing regulatory requirements, capital requirements and future personnel cost.
  • The plan should be based on current knowns, but at the same time be sensitive to perhaps other countries possibly leaving the EU or changes in EU regulation.  It should also allow for some scalability depending on the UK/EU negotiations, regulatory changes or favourable negotiations with other significant trading nations.
  • Key decisions are driven by regulatory concerns.  If it was previously taking 12 to 18 months, pre Brexit, for a Part VII transfer or authorisation of a new vehicle, how long will it take with all the Brexit applications both in the UK and in the various EU jurisdictions?

What we do know is that two years after triggering Article 50, and assuming no agreement is reached with the EU in that time, a number of European Directives will no longer apply.  Theses will affect inter alia, labour and employment, regulation including authorisation and eligibility to passport, Solvency II, withholding taxes and exit taxes.

To discuss your position, or for advice on your position in the Brexit process, contact co-authors Howard Jones and Paul Garbutt, Financial Services.

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