Dechert’s sectoral experts work closely alongside our International Trade, EU law and Government Regulation team to map out the impact the Brexit may have on any given sector and business and advise on the trade and regulatory consequences. Some of the notable areas likely to be affected include:
Financial services: London is the preeminent financial center in the EU and crucial to the UK’s economy. Post Brexit, financial services firms may be freed from the “single European rulebook” and the supervision of the supervisory authorities (ESMA, EIOPA and EBA, with the latter currently based in London). The UK may look to change some requirements it has never much liked but, subject to the shape of the final deal and any assessments of equivalence, firms may also lose crucial beneficial features including most notably passporting rights. Not all parts of the financial services sector will be equally affected.
Asset management: Asset managers will need to consider how their current client and distribution arrangements will be impacted if the UK becomes a “third country” for financial services purposes and UK funds cease to qualify for UCITS and AIFMD passports. Understanding how to make best use of third country access rights, national private placement regimes and targeted restructuring will give greater certainty to managers and their funds during the period of negotiation and under any new settlement. The MiFID II 3rd country equivalence regime may prove to be of particular relevance.
Other sector laws: In the name of harmonization and uniformity, consumer protection and public health the EU has been an investor in research and development in, and has been an active lawmaker for, various industries including pharmaceuticals, telecommunications and energy. With Brexit, companies will want to understand the impact of the loss of any investment – from the EU or from private investment in infrastructure – as well as the potential fragmentation of the regulatory environment in their particular sector. Understanding the impact of existing bilateral investment treaties and the opportunities they afford can help firms to plan for and mitigate the potential risks of a Brexit.
Trade agreements: The UK currently enjoys (through its EU membership) the benefits of the various Free Trade Agreements the EU has negotiated with third countries. Understanding the supply chain; the impact on tariffs that bilateral trade agreements bring; the provisions that would apply through the WTO as a base and what agreements could be prioritised in any renegotiation will help companies plan for the impact of leaving the existing trade agreements between the EU and third countries as a result of Brexit. Following any decision to leave the EU, it is highly likely that the UK would lose the benefits not only of existing agreements but also those under negotiation between the EU and others including the US. However, it can be expected to prioritize the negotiation of new FTAs even as it negotiates its EU withdrawal.
Intellectual property: Many trade mark owners have, since the creation of the EU (former Community) Trade Marks, favoured a protection at a European level rather than at national levels. In light of the Brexit vote, the EU Trade Mark may no longer be recognised in the UK and may have to be converted into a UK trade mark to preserve rights (though further taxes may have to be paid, as is already the case in case of voluntarily conversion). Brexit also throws into doubt the future (or at least the timing) of the introduction of the unitary patent, which is only due to come into effect when the Agreement on the Unified Patent Court comes into force.
Life sciences: The UK has had a traditionally strong interest in the life sciences, providing a voice for the industry at the EU table that may be lost as a result of Brexit. The strength of the sector is reflected in the location of the European Medical Agency in London, which is now likely to be relocated. Brexit also throws into doubt the EU regulations under the Community code for medicinal products.
Competition law: There is a prospect of parallel regulation and enforcement on merger control and cartels, requiring many cross-border transactions or cartel investigations to be considered not only at the EU level but also by the UK’s Competition and Markets Authority. It may provide an opportunity for dilution of regulation affecting specific areas, such as state aid and procurement rules, but much will turn on the exact scope of the new UK-EU arrangements.
Imports and exports: Currently, the EU customs union and free movement principles ensure that most goods can be traded and moved between EU member states without tariffs, customs duties or customs declarations and largely free of process, irrespective of the origin of the goods. The potential of tariffs on imports and exports or the increased administrative costs of a customs regime with the EU will vary from business to business but are likely to impact on many to some degree. Existing import and export licenses will have to be reviewed.
Data protection: The new EU General Data Protection Regulation will come into force throughout the EU in May 2018 and whilst it is likely to take effect within the UK, the post Brexit status of the incoming Regulation in the UK will need clarifying. Ultimately, the ability to transfer personal data to the UK will depend on whether the European Commission deems the UK protection of personal data post-Brexit to be adequate.
Employment law: Much workforce planning after the referendum will focus on political decisions around the outcome of any UK-EU approach to immigration and the uncertainty around the eventual economic and legal impact of Brexit on employers’ hiring policies. The extent to which there might subsequently be employment law reform will depend in part on the nature of the UK’s post Brexit relationship with the EU – for example, membership of the EEA would require the retention of much of the EU derived employment and discrimination legislation currently in place including the transfer of undertakings legislation. Wider employment law reform, if possible, would depend on the political appetite for the further winding back of employment law protections but possible candidates for reform include the agency workers legislation (including, in particular, parity of terms after twelve weeks), various provisions of the Working Time Directive, the obligation to conduct collective redundancy consultation with unions or employee representatives, and the difficulties which the transfer of undertakings legislation presents for harmonising employees’ terms and conditions post transfer. To help prepare, businesses may also want to seek advice on the sponsorship of employees, should that become necessary in light of the new UK-EU deal.
Environmental law: EU environmental law has a far-reaching impact across businesses in the EU and the UK, whether the transport, agricultural, waste management or energy sectors. Whilst Brexit may provide greater scope for the UK to develop environmental laws, much of the content derives from international agreements to which the UK will remain a party. However, the UK may have much more choice in how it gives effect to those obligations, for example on reaching emissions targets, and understanding the legal framework and policy choices available becomes central to planning for the impact of Brexit in this field.
Legal framework: Firms may want to start now to review the laws that apply to their contracts and other arrangements, currently governed by the Rome I and Rome II provisions respectively, and the rules on jurisdiction and enforcement of judgments, currently set out in the Judgements Regulation. Whether English courts remain subject to the Judgements Regulation in the longer-term can impact on the issuing of injunctions and the conduct of arbitrations. There may also be an impact on (or an opportunity to influence) UK procurement rules in the longer term depending on the nature of the future relationship with the EU. Brexit may also impact on investment opportunities in some areas, such as those in “sensitive areas” such as defence and energy investments where EU Member States impose more stringent requirements for non-Member State investors.
Energy: London is a hub for energy financing and deal-making, as well as a key energy producer (in the North Sea) and industrial sized consumer. Brexit will necessarily affect the entire energy value chain from the upstream (for example will the UK remain in the Energy Union), to competition law (what will the UK’s relationship be to the 3rd Energy Package?), to the midstream (how will the gas pipelines between the UK, the Republic of Ireland, the Netherlands and Belgium be affected), to energy matters further afield (how will this affect non-EU players in the British energy space, like Russia’s Gazprom?).