To quote Donald Rumsfeld on ‘known unknowns’: there are some things we know that we do not know. The outcome of the Brexit negotiations is surely the known unknown currently posing the most significant risk for the financial services sector.
The Bank of England’s response (in the form of a ‘Dear CEO’ letter) to the lack of certainty has been to require the biggest firms to put in place appropriate contingency planning, including for “the most adverse potential outcomes – for example, if there is no withdrawal or trade agreement in place when the UK exits from the EU, and the UK and EU do not reach agreement on issues such as implementation periods, mutual recognition of standards, and co-operation in financial regulation or supervision.”
Plans on how to respond to ‘no deal’ with the EU had to be submitted to the PRA by 14 July. Goldman Sachs’ CEO described the bank’s Brexit contingency plans as “buying insurance… to make sure that come March 2019 I’m open for business”.
In a similar vein, the FCA has also asked the UK’s largest asset managers and custodians for details of their Brexit contingency plans, including querying how Brexit will affect firms’ business models and whether they intend to relocate staff.
Although banks, insurers and investment firms are likely to be the most affected, all businesses carrying out cross-border activities between the UK and the EU should be considering what their response will be to a ‘no deal’ scenario.
We are already working with several of our clients in responding to queries over Brexit, including putting contingency plans into place to insure against the risk of this known unknown.
So in amongst the noise and analysis that surrounds the daily Brexit news cycle, rest assured that there is something you can do that will have a material impact on reducing risks to your business post March 2019.