Out-Law Analysis | 30 Mar 2017 | 9:46 am | 3 min. read
Key areas to consider immediately are the structure of the business, contractual arrangements, planning for regulatory change and closely monitoring developments.
Those that have not already done so should immediately review their business structure, establishing the extent of their cross-border operations and their use of regulatory passports. This review process will also give firms the opportunity to remove any passports that are no longer in use.
Where passports are used, firms should narrow down the options for continuing with that business in the event that no replacement for passporting is negotiated, or any available equivalence regimes are not sufficient. This could mean choosing the right jurisdiction for an EU hub, based on considerations such as:
seeking local regulatory licences where necessary.
Any necessary corporate restructuring work needs to begin as soon as possible, particularly where firms intend to take advantage of the EEA transfer procedures set out in Part VII of the UK's Financial Services and Markets Act (FSMA). Quick action will be important, on the basis that a transitional period following Brexit may not materialise and regulators will be increasingly occupied with business restructuring activity.
Depending on individual business profile, some financial services firms may need to consider alternative arrangements such as fronting or delegation rather than a full restructuring.
Like all businesses, financial services firms will have to plan their future employment profile to allow for the potential loss of the ability for EU citizens to work in the UK. Firms must identify non-UK EU nationals that are vital to their business and should consider maintaining a register of those individuals, so that they can quickly develop contingency plans if their rights to stay and work in the UK are curtailed.
Firms that offer multi-year or long-term products that may continue beyond the date of Brexit must develop a plan for the arrangements underpinning those products, particularly where support for them relies on cross-border regulatory permissions. Customer-facing documentation should also be reviewed to take account of the UK leaving the EU, for example by removing reference to EU dispute resolution mechanisms.
Outsourcing and distribution agreements should be reviewed for provisions affected by Brexit such as change in law termination provisions, exchange rate mechanisms, dispute resolution provisions and territorial definitions.
We now know that the UK will leave the EU before the end of March 2019, subject to the unlikely possibility of all 27 member states agreeing to an extension. However, a number of EU directives and regulations are due to come into force over this period and firms must ensure that their implementation is still incorporated in plans for the next two years. Key examples include:
There is no current expectation of a sharp change or reduction in the extent to which these rules will apply to the industry.
The position will develop during the negotiations. Financial services firms should therefore consider creating a team within the organisation to: