How Financial Institutions can Prepare for Brexit Changes



September 11, 2016

While it’s still unclear exactly what specific regulations and laws will be affected by Brexit, here are four areas that financial services institutions can begin to focus their considerations.

1. Passporting and rights to operate across borders

Financial institutions with entities situated in both the UK and in other EU jurisdictions rely on passporting rights and the right of establishment in order to operate across borders. If the UK leaves the EEA with no equivalent arrangement is put in place, these rights could be called into question.

Steps our clients can take:

  • Consider the optimal location of major trading, booking, distribution and back office activities in light of considerations like tax and labor cost, consumer protection laws and client proximity
  • Review the configuration of branch, subsidiary and HQ presence within the UK, EU and elsewhere
  • Explore the implications of establishing a new business or holding company within the Eurozone, and optimizing legal entity relationships

Bear in mind that creating new subsidiaries, transferring staff and other activities between locations may become a lengthy process.

2. Employment legislation

The government of the UK does not appear to be seeking to implement wholesale changes in workplace legislation, which means that it’s more likely financial institutions will experience refinements to the frameworks surrounding workplace law rather than outright changes. Still, many anticipate that the principle of free movement of labor and the benefits open to non-national residents will be challenged. These rights may no longer be automatic for EU citizens working in the UK, or UK citizens working in the EU.

Along with these challenges, we may see changes to the laws around pay and caps to bankers’ bonuses, pension laws, and TUPE (the automatic novation of employee contracts following business transfers). Additionally, the mutual recognition of professional qualifications between the UK and EU may no longer be automatic.

Steps our clients can take:

  • Review the group’s growth strategy (e.g., hiring entity in the UK vs. EU)
  • Plan internal communications to group staff on their long-term employment situations

3. Operations

Most of the UK’s financial market infrastructure legislation originates at an EU level. Departing from the EU will require the UK to renegotiate, replicate, or amend this legislation. As of yet it’s uncertain how this may play out, but one possible concern is that UK and EU regulators may both address any financial crises with divergent responses, reducing overall banking stability. For these reasons it’s vital that financial institutions in the UK be aware of the potential ramifications of legislation to their business operations.

Steps our client can take:

  • Identify key legislation that impacts your business and understand how it is implemented in your business
  • Review operations to identify where increased legislation or non-EU regulations might impact your business

4. Data retention and transmission

International laws regarding data retention and transmission will need to be renegotiated, as well. Currently, UK financial institutions enjoy rights from agreements and frameworks derived from EU Data Protection law. These rights may potentially be at risk if equivalent arrangements could not be agreed upon. Financial institutions hosting and processing UK data in an EU country may need to repatriate this data and vice versa.

Data transmission across international borders and the status of “offshore activities” providing services to clients in the EU may also be subject to restriction.

Steps our clients can take:

  • Review the data archiving infrastructure of the group
  • Review contracts in relation to the group’s ability to retain/transfer personal information across borders
  • Closely consider any large IT investment or decision in light of the upcoming Brexit

For everything you want to know about Brexit’s impact on the Financial Services industry, click here.