Planning for the Implications of Brexit

In Brexit, OTC Derivatives, Thinking by New Link Editor

On the morning of the 24th June 2016, the EU woke up to the news that voters in the UK had narrowly voted in favour of leaving the European Union.

Now that the UK Prime Minister has provided the European Union with official confirmation of the UK government’s intention to start the formal exit procedure under Article 50 of the Treaty of Lisbon, firms need to consider how they will complete contingency planning to mitigate the likely impacts of Brexit. They must ensure that they are able to protect their people, their business and their clients from the ramifications of the exit process. This paper contains the thoughts of New Link Consulting on what questions need to be answered to define the Brexit strategy of each firm, and the likely steps that will need to be taken to implement a coherent Brexit strategy.

The delivery of Brexit will be a legislative logistical and indeed cultural challenge on an unprecedented scale.


The volume of regulatory reform required is, quite frankly, not practical and transitional requirements will be essential to ensure that the necessary changes can be instigated within an achievable timeframe. However, practicality and pragmatism are not necessarily going to win out in a protracted battle, where more relevance may be given to more emotive political factors, than matters of structural reform and the minutiae of associated legislation necessary to the smooth functioning of markets. It is therefore likely, that much of the preparation for the onset of Brexit will need to be completed in the dark.

The impact of Brexit on the functioning of markets within the financial sector could range from minor, should the EU and the UK resolve to recognise bilateral equivalence and allow full passporting, to major, with UK institutions being effectively shut out from clients and markets within the EU in the event of an exit with no deal. Well publicised political wrangling over the location of Euro Clearing is causing much uncertainty and, if enacted, will likely make both sides worse off with higher transactional costs being passed on to people living either side of the Channel.

It is certainly not the case that UK based firms are the only companies with an issue. The UK itself is a sizable market, and certainly one of the continent’s most wealthy. EU firms wishing to continue to access the UK domestic market should also be looking at Brexit in sharp detail, especially those currently supporting UK operations from a branch as opposed to a subsidiary. In this scenario, it could be said that firms in this position will have a greater volume of work ahead of them than UK institutions with an already established EU domiciled subsidiary.

Brexit will also present an opportunity to many firms. Much of the work needed to prepare for the impact of Brexit will present an opportunity for both client rationalisation and client acquisition, two key factors with which firms are wrestling at present.

This paper outlines how New Link Consulting views the challenge of planning for Brexit’s uncertainties, and how firms should structure a programme of work to mitigate the business risks that Brexit poses and the tools that can be used to help.

Brexit Timeline

 

Clients and Markets

Client Review Tool

In recent years, banks have been focused on streamlining their operations and focusing on their most profitable clients. To support banks with this challenge, New Link Consulting’s approach to analysis is supported by our Client Review Tool which has been built based on our experience. This allows us to quickly and efficiently assess client profitability to the business in the various markets that they operate in. This has enabled our clients make proactive decisions to assess how best to service their clients,, or where it is economically beneficial, to off-board certain clients. We have now adjusted this tool to incorporate legal entity domicile as a key consideration such that it can be used as a window for how customers from different locations access different markets, with a focussed lens on profitability. This is intrinsic to the evaluation of how to formulate a robust commercially aligned Brexit strategy.

Location and Resource Strategy

Destination Scoring and Workforce Analysis

New Link Consulting have built a scoring methodology for the assessment of locations based on input from criteria that can be customised to each institution.. This can be used to assist firms with defining their preferred locations.. It draws upon considerations such as taxation, language, regulatory reputation, local staffing costs, livability and other tangible measures and allows firms to apply weightings to considerations that are most relevant.

Resource Transition

Transition Runbook

We have extensive experience in the transition of roles and staff to new offices and jurisdictions and execute transitions projects using our proprietary Run Book. This has been deployed numerous times in a variety of institutions across the industry, in both the buy and sell side, to help clients realise cost reductions and efficiency gains. This tool can be leveraged by our clients to assist with staff and role migrations as part of a proactive relocation strategy or a reactive response to requirements once the full impacts of Brexit are known.

Project Structuring and Execution

Programme Management and Governance

Quite simply, this is what New Link Consulting do best. We have extensive experience of managing large scale business transformation projects and have a dedicated Business Migration practice that leverages off the experience garnered during the wave of bank integrations, divestments and disposals preceding and immediately after the onset of the financial crisis. Our execution expertise spans entity rebranding and establishment, staff transition, client re-documentation, the execution of business transfers and wholesale novation activity, all of which are likely to be required as part of the lifecycle of a Brexit implementation project.

Position & Client Migration

Client Novations

New Link Consulting have a practice dedicated to the management of business integrations and divestments. Our consultants have extensive experience of packaging up businesses for sale and entity transfer. We have established a Migration and Novation runbook that can be deployed by our clients to help them seamlessly execute bulk migrations of client positions between entities within the same group. We are aware of both the technical and legal challenges that firms face when managing this complex task.

Client Communication and Consultation

Outreach Playbook

Never before have a greater volume of client notifications, policy communiques and consents been required for firms to protect their business and maintain their license to operate. From swap mis-sselling redress, through to EMIR and MiFID II disclosures, New Link Consulting have been working with our clients to manage the flow of information in both directions ensuring clarity of message, often in a time of conflicting regulation and business priorities. Our Client Outreach playbook helps ensure that the correct clients are presented with the correct and appropriate messages across large scale multi-faceted programmes. We have a track record of successfully disseminating information, tracking responses and providing status updates to businesses who depend on timely response and action from their clients.