How should your company prepare for Brexit?
In the face of continuing uncertainty, the best advice for firms is to think through how operations may be affected and conduct a rigorous risk assessment, write Constantin Achillas and Robert Bell
A common point of discussion among multinational companies is the question of what steps need to be taken to mitigate the risks Brexit poses. The UK handed in its article 50 notice on 29 March 2017, leaving a two-year period of negotiation before its exit from the EU in March 2019. That is where the certainty ends. An agreement could be reached before that date which sets out a clear process and the UK’s exit terms. Conversely, the UK and EU could fail to reach an agreement, leaving the UK outside the EU in April 2019 without a trade treaty.
The view from the UK
There is no doubt that Brexit will bring at least some change to the UK business environment from April 2019. For instance, visa requirements for EU nationals are likely to change, regulatory requirements may begin to diverge, and the supremacy of the EU’s institutional systems for areas like merger control will almost certainly revert to the UK. There is also the danger that a failure to reach an agreement will result in the UK and EU imposing tariff barriers against certain of each other’s imports.
While these changes could be disruptive, the UK’s core competitive advantages will remain. The English jurisdiction is likely to remain one of the most business friendly in Europe for the foreseeable future. Further, the relatively free market economy and flexible employment laws will remain, if not improve in time, after Brexit.
As nobody knows how negotiations will turn out, this is probably not the time for knee-jerk reactions or preemptive relocations, but, as the final position will not likely be negotiated until the last moments, waiting until this becomes clear may also be a mistake.
Before considering the options, it is worth remembering that it is in the interests of both EU nations and the UK to eventually reach an agreement that is least disruptive to trade flows and movement between nations. A messy and acrimonious politically driven divorce will not be tolerated by the citizens and businesses in either the EU nations or the UK, so the risks of a doomsday scenario are probably low.
Having said this, while there is this perceived light at the end of the tunnel, there are still prudent steps that businesses could take to mitigate risk.
Reviewing UK operations
Businesses should look at their UK operations, especially if they serve the EU from the UK, and work out how exposed their operations could be and how quickly alternative plans could be put in place. For example, businesses might want to consider hedging their bets and, if affected, moving some of their operations to the EU while retaining a substantial UK presence. Financial institutions or other businesses that make use of EU regulatory approvals could establish EU-based subsidiaries and seek common EU approvals, meaning that, in a two-tier Europe, they would continue to have access to both the UK and EU markets.
The view from France
In the Brexit negotiations, France has to face the complexities of ‘a negotiation within the negotiations’ – addressing the challenge of reaching agreement with its fellow EU member states.
As a founding member, France may well feel the need to defend the EU’s position before its own. Michel Barnier, the designated head of the EU negotiation teams, is a convinced European and may well favour a hard Brexit.
For the time being, the conflicting views on the continent regarding a hard and a soft exit and the position adopted by the UK make it hard to foresee which way the negotiations will proceed. The Scottish question compounds this difficulty.
The financial sector
So far the negotiations appear to be crystallising around the core principles of the EU, namely three freedoms: the free movement of capital, of goods, and of people. The main focus seems to be on whether it is possible to abide by some of these principles and, at the same time, reject others – what English speakers might call ‘having one’s cake and eating it too’ – which calls into question the very essence of the EU as it was created 60 years ago.
The financial sector’s attitude toward Brexit illustrates the uncertainty around the article 50 announcement. At this stage, it is totally unknowable to what extent Brexit will affect the British and European financial sectors, but the loss of the European passport for financial institutions and investment management companies would force financial actors to relocate at least some of their activities to the EU. Although no one knows if the retention of the European passport can be agreed, the potential exit from the common market of its leading financial centre has already sharpened appetites for recovering long-lost markets. France has fired the first shot by welcoming 1,000 HSBC employees from Britain and Goldman Sachs has announced it is looking into moving employees to Paris as well.
As for banking regulation, the relocation of the European Banking Authority from the UK constitutes a major evolution for the future of banking regulation. The move away from British influence to the continent will be a major shift but the impact this will have is still unclear.
In the face of such uncertainty, the best advice is to think through your operations and how they may be affected, and conduct a rigorous risk assessment that takes account of the lead times needed to make any changes.
In the end it is also worth highlighting that, by watching the Brexit negotiations carefully and anticipating the consequences, it should be possible to gain an advantage over the competition.
No doubt there will be winners and losers in the process – and it is those that start to prepare now who are more likely to be successful.
Constantin Achillas is head of the dispute resolution team (Paris) and Robert Bell is head of the EU and UK competition team (London) at firm Bryan Cave