Stephen Kitts, Managing Partner Asia at Eversheds, examines the key issues facing organisations in Asia seeking to navigate their way through Brexit.
Brexit is not one event. It is a range of possible deals. The final Brexit agreement with the EU will determine the future of the UK (and possibly your company) for the next 20 years.
So concentrating on business as usual is not good enough. The world has clearly moved on and every business must adjust to the changed circumstances.
As part of Brexit, every piece of EU-based UK law will be reviewed and a decision taken to repeal, keep or amend that legislation. Every organisation should have a Brexit plan based on a ground-up review of employees, customers, counter-parties and trade relationships. The plan should cover every likely brand of Brexit. Click here for information on the possible scenarios: "Making Sense of Brexit".
Given Prime Minister May's desire for a bespoke British deal, the final outcome is likely to be a blend these options. The following summarises the essential steps to prepare your business for Brexit:
1. Employment and Immigration
Start with your employees. Without them, you don't have a business. Where is your workforce from? How much of it benefits from current EU freedom of movement? What would the impact be on the business any EU nationals had to return home; or if you couldn't easily recruit in your current target jurisdictions? These questions are particularly relevant for international banks and the professions, both of which have large expatriate workforces.
2. Trading Networks
Where does you organisation import your products and materials from and, in turn, export to? For each of these products and materials, how do the existing EU customs and tariff rules benefit this supply chain (or perhaps hinder it)? Which of these rules do you most need?
It is possible that the UK will exit the EU without having finalised a trade deal, as the exit could be quicker to negotiate than a trade agreement. If this is the case then the UK will be governed by the World Trade Organisation rules. How will these rules affect your business and what additional costs might they impose? Post-Brexit, the UK will no longer benefit from EU treaties with third party countries. This may result in new barriers to trading goods and services outside the EU. Preparing for this outcome will require a detailed review of each country to adjust any contracts and arrangements to fit the new Brexit world.
3. Contractual Relationships
All long-term contracts should now include transitional Brexit and change/divergence of law provisions to address the future separation of UK and EU law. Current contracts will need to be reviewed for currency risk together with any tariff, tax, customs and trade assumptions. Future contracts should be adjusted to cater for change in all these areas. This contractual audit should include a review of pricing and profitability and how they might be impacted by Brexit.
Brexit poses a number of issues not only for financial services providers but many other sectors. Passporting allows PRA and FCA authorised banks, insurers and financial sector companies to sell their services and products (and open offices) across the EU without need for further authorisation. It is an invaluable simplification of the previous multi-jurisdictional authorisation regime and a powerful driver for businesses locating within the EU.
Brexit planning means taking a long term view. Everyone is worrying about a recession and the Bank of England has already taken steps to address this possibility.