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6 Dec 2017

The Art of the No Deal: How Best to Navigate Brexit for Financial Services

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It is hoped that, with Brexit on the horizon, the EU and UK will reach a new deal which preserves the ability of customers and financial institutions to continue their existing access rights. However, there is no certainty that this will be achieved. Financial services firms have been preparing for the fallback of a “no deal” alternative. It is important for firms and customers to take steps now to ensure that they are in a position best to continue providing and receiving financial business between the EU and London, whatever happens. Action taken now can avoid the need and expense of moving significant operations out of the UK. Various legal techniques can be used to minimise the need for such moves. With the following 10 steps[1] as a framework, UK businesses can prepare for different contingencies and provide their customers with the benefits of the most efficient possible access to capital from the global financial centre in this timezone, whatever the Brexit outcome.

10 Steps

  • Make a robust and thorough assessment of any perceived cliff edge issues for existing client relationships.
  • Make enhancements to existing relationships where possible (for instance by considering assignment clauses and reverse solicitation provisions where desired by the clients), so as to preserve and enhance those relationships post Brexit, allowing for future optionality—by amendments to contracts, side letters or email.[2]
  • Ensure business which comes in through reverse solicitation is properly documented and accepted so that the framework is robust.
  • Ensure a thorough analysis is made of what business is truly cross-border in law so that non-UK regulatory provisions are applied only when necessary, and consider whether, with minor adjustments, the EU’s regulatory perimeter need not be invoked at all.
  • Consider solutions for assisting customers in ‘coming to the UK’ in a low-cost way, for instance by establishing a small place of business here such that all future provision of financial service is purely domestic UK, and EU-facing activities are intra-group.
  • Consider other techniques for ensuring that regulatory provision takes place in the UK; for instance, the establishment of a trust to receive insurance policies and hold the benefit on trust for EU-27 customers.
  • Consider in detail individual business areas and the laws surrounding those areas to allow business moves to be minimised, for instance indirect clearing, agency arrangements, give-up agreements, delegation, outsourcings, branching back and reinsuring back into the UK from the EU-27.
  • Consider market-driven and infrastructure-based solutions, for instance UK infrastructure offering derivative or look-alike products which permit trading to continue in the UK in spite of any issues found in trading on EU-27 platforms.
  • Liaise with the UK Government on the introduction of possible tax incentives and regulatory improvements so as to optimise business models whilst ensuring they are safe for the UK, the global markets and the UK taxpayer.
  • Consider how to retain talent and jobs by assisting staff with any immigration approvals or other support needed to allow them to stay in the UK.
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[1] In his latest book, ‘The Art of the No Deal—How Best to Navigate Brexit for Financial Services,’ published with Politeia, partner Barnabas Reynolds analyzes these steps further. To read the book, see ‘The Art of the No Deal—How Best to Navigate Brexit for Financial Services.’ Note that this is a personal publication of the author in such capacity and is not a publication of Shearman & Sterling LLP.

[2] You may like to see our client publication, “Continuity of Contracts and Business on a “Hard” Brexit: Human Rights and Reverse Solicitation to the Rescue!”—available here.

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