Market and media commentary since the U.K.'s EU referendum has made clear that most international (particularly non-EU) institutions currently based in the U.K. have a preference not to move any meaningful business to the EU-27. Financial sector firms need to identify the practical steps they can take in order to avoid costly and risky relocations1.
Practical steps to take will vary from firm-to-firm, but any firm should consider undertaking the following exercise:
- Make a robust and thorough assessment of any perceived cliff edge issues for existing client relationships.
- Make enhancements to existing client
and counterparty relationships where possible (for instance, by
considering appropriate assignment clauses to enhance property
right-based protections and adding reverse solicitation provisions
where desired by clients who wish to continue the relationship),
allowing for future optionality—by amendments to contracts or
side letters.
- Ensure that any business which comes in through reverse solicitation is properly documented and accepted, to ensure a robust compliance framework and documentary trail.
- Ensure a thorough analysis is made of what business is truly cross border in law, so that non-U.K. regulatory provisions are applied only when necessary, and consider whether, with adjustments, the EU's regulatory perimeter need be invoked at all.
- Consider solutions for assisting customers in coming to the U.K. in a low-cost way to receive services, for instance by establishing a U.K. subsidiary such that all future provision of financial services is purely domestic U.K., and EU-facing activities are intragroup.
- Consider other techniques for ensuring that regulatory provision takes place in the U.K., for instance, the establishment of a trust to receive insurance policies and hold the benefit on trust for EU-27 customers.
- Consider in detail individual business areas and the laws surrounding those areas to allow business moves to be minimized, for instance, indirect clearing, agency arrangements, give-up agreements, delegation, outsourcings, branching back and reinsuring back into the U.K. from the EU-27.
- Consider market-driven and infrastructure-based solutions, for instance U.K. infrastructure offering derivative or lookalike products which permit trading to continue in the U.K. in spite of any issues found in trading on EU-27 platforms.
- Liaise with U.K. Government on the introduction of possible tax incentives and regulatory improvements so as to optimize business models, whilst ensuring they are safe for the U.K., the global markets and the U.K. taxpayer.
- Take steps to retain talent and jobs by assisting staff with any immigration approvals or other support needed to allow them to stay in the U.K.
Footnotes
1 For a detailed discussion of the steps that financial services firms should take now to avoid the expense of moving operations out of the U.K., see The Art of the No Deal—How Best to Navigate Brexit for Financial Services, Barnabas Reynolds, available at http://www.shearman.com/en/newsinsights/publications/2017/11/the-art-of-the-no-deal.
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