Political Lessons for Legal Risk Managers From the Brexit Vote

It would not be an understatement to say that the outcome of the Brexit vote surprised many legal risk managers worldwide.

1. Keep calm and carry on
Legal risk managers should not make any bold or brash decisions concerning operations or investment in the United Kingdom until things calm down and there is a clear political, economic and social understanding of what the true impact of Brexit will be for both the United Kingdom and the European Union as a whole.

2. It ain’t over til its over
There will be tough negotiations ahead between the United Kingdom and the European Union 27 remaining Member States to work out the divorce terms. This may take years to resolve. It is clear that the stumbling block is that there can be no access to the Single Market by the United Kingdom without freedom of movement for European Union workers. However, the cut from this hard and fast line will hurt French farmers and German automobile manufacturers as much as it does British bankers and airlines.
However, until Article 50 of the Treaty on the European Union (“TEU”) is triggered by the United Kingdom, the divorce is not a done deal. While the UK Government suggests that the Prime Minister has the authority to trigger Article 50 of TEU, it is clear that Parliament would have to pass an act repealing the European Communities Act 1972. The United Kingdom courts would then have to give effect to and follow such a major constitutional act. The question to be asked remains what aspects of European law will remain incorporated into United Kingdom law (England and Wales, Scotland and Northern Ireland) after a Brexit? Nobody knows.

3. Remain bullish on the United Kingdom
While it is true that the pound has taken a beating in recent days, it will rebound over time. At the same time, the FTSE 100, FTSE 250 and Eurostoxx Banks have had £104 billion wiped off their trading prices. At the end of the day, the United Kingdom is and will remain a brilliant place to live, work and invest in no matter how Brexit plays out. This is the reality. Work, however, will have to be done to heal the rifts in society and national unity that the referendum has exposed. In particular, Prime Minister May will have to act quickly to address the haemorrhaging of confidence in the political establishment that characterises the mood in the United Kingdom today. While Mark Carney, the Governor of the Bank of England, has done much to “pour oil on troubled waters” since the 23rd of June he can only do so much to instil confidence in markets. Leadership must come from No. 10 Downing Street!

4. It is anything but smooth sailing in the European Union too!
The outlook for the European Union, the United Kingdom’s biggest trading partner, is also worth close scrutiny by legal risk managers as well. These are uncertain times in the European Union as well as elections loom in France and Germany in 2017. Italy faces a banking crisis along the lines of what the world faced in 2008 which will test the Eurozone severely. What are your plans to meet these challenges?

5. Lawyers and legal risk managers will be the winners in post-Brexit Britain
The immediate outcome of Brexit means that there will be a new re-allocation of winners and losers as a result of the vote. Lawyers and legal risk managers will do well trying to understand the unwinding of the impact of 45 years of European Union law on the UK legal system which Lord Denning so famously likened to an incoming tide. For instance, will the post-Brexit regime complicate the recognition and enforcement of English court judgments in European Union Member States? What will be the effect of the post-Brexit regime on the rules for determining jurisdiction?
On the other hand, it is thought that financial services will fare less well. The banking and financial services sector will have to reinvent themselves if they are to thrive in a world where they do not have the commercial advantage of “passporting” which allows banks and financial institutions to offer their services across the European Union across all Member States without tariffs and local regulatory hurdles. Will the proposed London Stock Exchange-Deutsche Bӧrse merger be the first casualty of Brexit? Will London lose its Euro clearing business? Only time will tell.

6. Remember the United States holds the trump card!
Finally, for those legal risk managers who were caught unawares by the Brexit Referendum - prepare for 8 November 2016. Remember the United States holds the Trump card! These are unsettling times as people are increasingly distrustful of experts, elites and perceived wisdom. They feel that globalisation, free trade and migration have made them poorer not richer. The lesson to be learned from Brexit is that political risk is something that not only affects developing markets but also mature markets as well. Welcome to the new normal!

4. It is anything but smooth sailing in the European Union too!
The outlook for the European Union, the United Kingdom’s biggest trading partner, is also worth close scrutiny by legal risk managers as well. These are uncertain times in the European Union as well as elections loom in France and Germany in 2017. Italy faces a banking crisis along the lines of what the world faced in 2008 which will test the Eurozone severely. What are your plans to meet these challenges?

5. Lawyers and legal risk managers will be the winners in post-Brexit Britain
The immediate outcome of Brexit means that there will be a new re-allocation of winners and losers as a result of the vote. Lawyers and legal risk managers will do well trying to understand the unwinding of the impact of 45 years of European Union law on the UK legal system which Lord Denning so famously likened to an incoming tide. For instance, will the post-Brexit regime complicate the recognition and enforcement of English court judgments in European Union Member States? What will be the effect of the post-Brexit regime on the rules for determining jurisdiction?
On the other hand, it is thought that financial services will fare less well. The banking and financial services sector will have to reinvent themselves if they are to thrive in a world where they do not have the commercial advantage of “passporting” which allows banks and financial institutions to offer their services across the European Union across all Member States without tariffs and local regulatory hurdles. Will the proposed London Stock Exchange-Deutsche Bӧrse merger be the first casualty of Brexit? Will London lose its Euro clearing business? Only time will tell.

6. Remember the United States holds the trump card!
Finally, for those legal risk managers who were caught unawares by the Brexit Referendum - prepare for 8 November 2016. Remember the United States holds the Trump card! These are unsettling times as people are increasingly distrustful of experts, elites and perceived wisdom. They feel that globalisation, free trade and migration have made them poorer not richer. The lesson to be learned from Brexit is that political risk is something that not only affects developing markets but also mature markets as well. Welcome to the new normal!