In April 2017, the PRA issued a Dear CEO letter to all its regulated firms asking for information on their contingency planning for the UK’s withdrawal from the EU.
This is to ensure that the UK maintains a position of financial stability. The PRA will also use the information received to inform its own Brexit contingency plans and the recently appointed chair of the Treasury Select Committee, Nicky Morgan, has requested details of this exercise to assess just how ready firms really are. Meanwhile, the FCA has posed a series of questions to 20 of the UK’s largest asset managers on their Brexit contingency plans asking for information such as anticipated capital impacts and the status of overseas license applications.
The PRA in particular has clear expectations of all UK firms with cross-border EU activities to have carried out appropriate Brexit contingency planning. In doing so, firms should prepare for a range of scenarios, including the most adverse outcomes such as no trade agreement being reached. Whilst the regulator believes that many firms are progressing well with their planning, they are concerned that others are not as well advanced.
This all ties in with work being undertaken by the Bank of England’s Financial Policy Committee (FPC) to identify and monitor UK financial stability risks in order to plan for, and mitigate, such risks. The FPC is of the view that the most extreme Brexit scenarios are ‘where contingency planning and preparation will be most valuable’. It is as a result of this work that the FPC is promoting an orderly adjustment to the new and developing relationship between the UK and the EU.
Scenarios and options
Whilst there remains an enormous amount of uncertainty surrounding Brexit negotiations, there are also clear benefits of planning for the worst. Should no agreement be in place by the time of the UK’s withdrawal in March 2019, there will be far reaching implications for any firm currently relying on passporting arrangements for cross border EU business.
Of course there is hope that an effective trade agreement will be successfully negotiated. Such an agreement could take various forms, impacting firms in a number of different ways. This could also happen according to a variety of timetables. In other words, firms should develop plans for a range of different scenarios.
In order for impacted subsidiaries or branches to continue operating in their current jurisdictions (UK and mainland Europe), new authorisations or licenses may be required. Indeed, some firms may wish to consider withdrawing from certain markets altogether. In essence, each firm will be faced with a range of options, some of which will clearly be less palatable than others. Nevertheless, it is important that an open mind be maintained when considering such options in order to prepare for the vagaries of a post-Brexit world.
Bovill can help
Firms may, by now, have shared a summary of their Brexit contingency plans with the regulators but for many firms, preparations are really only just beginning. In order to maximise your Brexit resilience, you will need to consider a host of factors and how they play out under each scenario. For example, what new authorisations might be required; what conversations will you need to have with the regulators; and how will this affect your capital and liquidity? There are wider issues too, such as setting up new companies, staff relocation and tax considerations.
We can help formulate your plans and navigate the evolving regulatory environment as Brexit draws ever closer. If needed, we can manage your variations of permission and guide you through every step of the process including liaising with the regulators. We can also advise on potential capital and liquidity impacts, any necessary changes to your regulatory business plan and can help redraft policies and procedures as required.
Please get in touch to find out more about how we can help you make the most of the challenges and opportunities presented by life after Brexit.