A Vote to leave EU_730x355

The UK has voted to leave the European Union (EU). Uncertainty in financial markets and among the business community is understandably very high. Today, there are many more unknowns than knowns – especially about how financial services firms operating in the UK will access and trade with the EU’s Single Market in future.

But, at least for the time being, some things are certain. From a purely regulatory perspective, today is much the same as yesterday:

  • The UK remains a member of the EU, and is unlikely to be in a position to leave for at least another two years following an exit process set out in the Treaty on European Union (TEU).
  • EU law continues to apply up to the point the UK leaves the EU.
  • UK firms will continue to benefit from the same market access they currently have until a formal exit occurs.

This is the calm amid what is otherwise a very turbulent short-term outlook. The immediate political, market and economic events over the next few weeks and months will be difficult to predict or control. In this highly uncertain environment, we expect the short-term focus for firms to be on managing the financial impacts and communicating with a broad range of stakeholders, both internal and external.

This is the first in a series of notes which we will publish as the process of the UK’s exit from the EU unfolds.

Planning considerations for financial services firms

Below are six steps that we believe are critical for firms to consider now that the UK has voted to leave the EU. You can read our extended analysis of these and other relevant issues here.

  1. Be ready to respond at very short notice to information requests from supervisors, both in the UK and elsewhere, about the impact of market volatility on balance sheets and customers/counterparties.
  2. Broaden and deepen scenario analysis and contingency planning.
  3. Develop well considered and consistent communications to internal and external stakeholders.
  4. Consider how future strategies might be affected, positively or negatively, by the terms of the UK’s exit from the EU.
  5. Begin to work through detailed plans and timelines for any relocation strategies that may need to be invoked.
  6. Consider the appetite for buying “insurance” against possible outcomes that could seriously undermine a firm’s business model.

Dealing with an uncertain outlook

For some financial services firms, particularly those which use the UK as a hub to passport or provide services on a cross-border basis into other EU Member States, the terms of access which the UK negotiates to the Single Market will be fundamental to their future strategy and business models.  For many of these firms, "waiting and seeing" until the outlook becomes clear will be untenable, given the lengthy lead times associated with moving substantial blocks of business and potentially people.

These firms face a period of decision-making under significant uncertainty. To operate successfully in this environment will require meticulous planning, including scenario analysis and contingency planning, the identification of triggers to activate elements of those plans, and, in some cases, taking early decisions to secure maximum flexibility and optionality for the future.

David Strachan_110x110

David Strachan - Partner & Co-Head, EMEA Centre for Regulatory Strategy

David is Head of Deloitte’s EMEA Centre for Regulatory Strategy. He focuses on the impact of regulatory changes - both individual and in aggregate - on the strategies and business/ operating models of financial services firms. David joined Deloitte after 12 years at the FSA, where in his last role, Director of Financial Stability, he worked on the division of the FSA into the PRA and the FCA.

Email | LinkedIn

Suchitra Nair_110x110

Suchitra Nair - Senior Manager, EMEA Centre for Regulatory

Suchitra is a Senior Manager in the EMEA Centre for Regulatory Strategy, specialising in the strategic implications of banking regulation. Prior to joining the Centre she was involved in delivering large scale regulatory change projects for UK and international banks. She is a qualified Chartered Accountant and has also worked in Deloitte’s Audit and Corporate Finance teams.

Email | LinkedIn

Scott Martin_110x110

Scott Martin - Manager, Centre for Regulatory Strategy

Scott is a Manager in the Centre for Regulatory Strategy advising on UK and EU banking regulation, with a particular focus on prudential rules and structural reform. Before joining Deloitte in 2015, he spent four years as an EU financial regulation consultant in Brussels after graduating from the London School of Economics. He previously spent a number of years working as a political advisor to Canada’s Minister of Finance and Minister of Foreign Affairs.

Email | LinkedIn

Comments

  • This is an interesting point of view.

    Posted by: Maina on 30/06/2017

  • Very informative

    Posted by: Robert on 30/06/2017

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