BREXIT: Scottish financial firms need post-Brexit 'contingency plan', says expert

Out-Law News | 14 Feb 2017 | 11:31 am | 1 min. read

The firms that make up Scotland's £8 billion financial services industry will need to develop "contingency plans" to ensure that they can continue trading with Europe once the UK leaves the EU, an expert has said.

However Michael Watson of Pinsent Masons, the law firm behind Out-Law.com, said that it was not yet clear what actions firms would have to take as "we do not yet know what legal and economic structures are going to be put in place" after a negotiating period of at least two years.

Writing in The Scotsman, finance and projects expert Watson said that 'Plan B' for financial firms "would certainly be centred around ensuring that they have an option to establish their regulated business in a continuing EU member state".

"This would undoubtedly involve some roles and responsibilities potentially moving to Dublin, Frankfurt, Paris or another financial centre, to ensure the business has an option post-Brexit to access the EU market, similar to the way they do now," he said.

"Firms which opt to set up business within an EU state and passport from there will find that establishment requirements in some jurisdictions are relatively modest and services can be outsourced or delegated back to the UK. Some states will appear more attractive than others, so firms must bear in mind the capacity of the more popular ones to deal with an increased demand on infrastructure and their regulators' ability to cope with a surge of applications for authorisation," he said.

According to Watson, Oxford University professor Wolf-Georg Ringe has argued that a "good open passporting arrangement post-Brexit would be logical for both the UK and the EU's 27 remaining member states, given the 'economic stakes' for both sides."

"However, that does not take into account the fact that the negotiations, like any good negotiations involving legal, political, economic and, most importantly, emotional factors, will not be entirely logical," he said.

Passporting arrangements allow firms based in one EU member state to trade anywhere in the bloc without having to seek multiple authorisations. However, UK financial firms are expected to lose their passporting rights once the UK leaves the EU and exits the single market.

Almost five and a half thousand UK financial firms rely on at least one regulatory passport, while a further 8,000 firms based in the EU or EEA have been granted passports to market and sell their products in the UK, according to the latest figures from UK regulator the Financial Conduct Authority (FCA). Although some, but not all, of the relevant EU directives contain 'equivalence' provisions for non-EU countries, equivalence will only be granted on a case-by-case basis and depends on a decision by the European Commission.