To the surprise of many, the UK has voted to leave the European Union by a narrow margin. Financial services businesses in the UK, and those that were planning to come here, now need to decide what (if anything) to do.

For legal and political reasons, #Brexit is unlikely to occur before the end of 2018. Although it seems incredibly unlikely today – it’s not altogether impossible that it will be “cancelled”. Unless and until #Brexit actually occurs, the UK is still obliged to implement and comply with EU law. So (for example) Solvency II, the Insurance Mediation Directive, the AIFMD, the Payment Services Directive, and the 3rd Anti-money Laundering Directive all still apply; and the Insurance Distribution Directive and the (still to be amended) 4th Anti-money Laundering Directive are still on their way. This is both good news (the passport’s still there, and can be relied on); and bad (the UK’s negotiating position has been weakened, and it’s ability to influence the shape of emerging European law has been severely undermined).

When #Brexit occurs, the UK will leave the EU and the passports will fall away, unless the UK joins the European Economic Area, or its negotiated exit terms give it access to the EU via the passport, or on some other basis. The Brexiteers are confident that favourable access terms will be agreed – but this cannot be guaranteed.


UK businesses trading across Europe in reliance on the passport will need to contingency plan against the risk that the passport will be lost – and then decide whether to implement those plans. For existing UK firms carrying on business across Europe on a cross-border services basis and/or through a branch network, there’s a wide range of issues to consider. For example:

  1. How much (a) UK; and (b) pan-European, business we do, and how much do we think we’ll be able to do in the future?
  2. If our business is almost entirely in the UK, would it be better to accept the loss of our European business, than to establish a presence “back” in the EU. If we carry on some or all our business outside the UK, and within the EU, what do we need to do to keep that business, if we lose the passport? That might mean subsidiarising a branch, or establishing a physical presence in the EU for the first time; and “swinging” the European branches of our UK company around, so they become branches of a new European entity. It might also mean moving some or all of our UK front, middle and back office functions and staff out of the UK and back into the EU;
  3. If we need to establish a presence in the EU, where should we go? This will depend on many things. For example (but not in any particular order):
    • the amount of business we do in the different parts of the EU, and the amount we’re hoping to there in the future;
    • the official and business language(s) of the countries we’re interested in – a practical issue that generates risk and affects the bottom line;
    • currency – in particular, are the countries we’re interested in, in the euro-zone or planning to join?
    • corporate and personal tax rates, and their direction of travel;
    • political and regulatory stability – how business friendly and accessible is the regulator, and is that likely to change any time soon?
    • the legal system – inquisitorial or adversarial? stable? certain and practical, from a commercial and dispute resolution perspective?
    • jurisdictional reputation;
    • geography – how easy will it be to get there, and how safe will we be when we’re there?
    • destination – will my UK staff be willing to move there, and stay? What about the cost of living?
    • resources – are there enough highly qualified people there for me to be able to recruit the staff I need to run my business?
    • corporate law – do they offer the corporate structures I need? How many directors and officers will I have to have in the jurisdiction and where will I get them from?
    • employment law – what compensation and other benefits are market standard? Will my employees have more protection or less, and what impact will that have on them, and on my bottom line?
    • what impact will a move have (if any) on my group’s structure, my intra-group loan and other arrangements, and on the identity of my group supervisor, if I have one?
    • If I need a new regulatory permission or licence, how long will it take to get it, how much will it cost, and how what will my minimum capital requirements be?
    • how will I pay for all of these things, and get them done by the end of 2018 … bearing in mind the “system bottle neck” pressures I’m likely to face?
    • How will I continue to run my business, and mitigate the disruption and other risks these changes will bring, at the same time?

With such a long and complicated list, planning probably needs to start immediately; and implementation shouldn’t be too far behind … although it would be worth building in break points, so that plans can be cancelled, if it alcoves to nought. Blood, toil, tears and sweat. And the potential for substantial wasted cost. But unavoidable, all the same.

Non-EU businesses that are coming, or were planning to come, to Europe will need to consider a similar range of issues. Although it was never certain, the UK has long been a top 3 destination for many non-EU domiciled businesses, looking to expand into Europe. There are many reasons for this, including: low and falling tax rates; English as the official and business language; an independent currency; well regarded regulators; and an independent Central Bank. The UK is also home to the City of London, which sits in a desirable time zone, and has long been regarded as leading international financial centre, with all of the people and other resources you need to establish and run a successful international financial services business. Oh. And a cross-border services and branch network passport issuer, that offers easy access to the EU. The UK’s referendum result necessarily puts that in doubt – but: (i) #Brexit won’t necessarily happen; (ii), if it does, the passport might still be retained; and (iii) everything else is still here. The UK should still therefore be regarded as an attractive destination – even if the decision making has just become more complicated than it used to be.