There has been a great deal of focus recently on whether Britain will stay a member of the customs union or single market post their departure of the EU.
Because the majority of negotiation to date has been on trade rather than on services, the financial services industry in the UK has been left questioning what its future relationship with the EU will look like and how it will operate.
As a partner to several global banks in the UK, the question we most often get asked is: What should our contingency plan look like?
A number of global banks have started contingency plans with a focus on repurposing existing entities based in the EU or creating new ones. This means that after the UK leaves the EU the volume of client-facing activity in London will significantly reduce.
While it’s hard to say whether the juggernaut of Brexit can be stopped once it has started rolling (and the doomsday merchants would definitively say no) it is in fact in the best interests of most firms to maintain the status quo.
There is a significant amount of work within a global enterprise to enable these EU-based client-facing entities to trade. This includes new booking models, new approaches to risk management, new internal approvals to enable the products and entities to be properly set-up, new limit monitoring frameworks, new connections to market utilities and a whole raft of new legal and contractual documentation to allow the client to trade products with these new entities.
On top of this work, new relationships have to be established with local regulators in France, Luxembourg, Germany, Ireland and more who have less experience in the volume and complexity of transactions that are traded in London.
It’s an enormous undertaking for a future that is still very uncertain—and changing by the hour.
The buy-side has its own headaches. Previously, they could manage funds for all their EU and UK clients in the same way. In the future, they will have to support EU and UK clients separately. Many buy-side institutions are also exploring contingency plans with an equally complex and tedious roll-out with no real answers to help dictate what any of this should look like.
Impacting both the sell-side and the buy-side firms is the fact that much of the regulatory framework (EMIR, MIFID II) applies to the whole of the EU and the UK will have to adopt similar legislation once it leaves the EU.
Given the level of uncertainty with Brexit and the lack of enthusiasm from banks and their customers, the key thing is not to overhaul the institution’s business model but to maintain the status quo and create contingency plans that are easy to cancel, defer or unwind.
The good news: In creating a new framework, financial services institutions are not undoing their existing framework. If a Brexit solution allows the status quo to be maintained, the work to repurpose entities or add new ones can be easily replicated.
Need help navigating your institution through Brexit? Vox FP is working with major banks to support them in several aspects of their Brexit transaction including program and project management, client outreach, repapering, onboarding to new venues and internal approvals. In addition, our Opal: Repaper application helps financial services institutions repaper their clients more quickly and efficiently through bulk automation and with a dynamic dashboard to provide transparency for management. Learn more here: https://voxfp.com/products/opal-repaper/.