The loss of passporting rights is a likely outcome of Brexit negotiations and this will impact a large number Financial Services companies who operate in the UK and trade with EU countries.
The implications of Britain’s withdrawal from the EU on Financial Services companies
Research from the Financial Conduct Authority (FCA) has identified over 5,000 UK based companies hold at least 1 passport to offer services across the EU. According to a Reuters’ tally of job warnings, it is also estimated that global banks with operations in London, plan to move about 9,000 jobs in the next two years to financial centres that will stay in the EU.
It also means that Financial Services companies in the UK will need to consider restructuring and moving some of their operations and IT to other EU countries to continue to be able to provide their services and products across the EU.
Such a major restructuring event with the result of the negotiations unknown, is difficult to manage, especially within the short time frame required.
How can Financial Services companies manage their IT change requirements?
What are the potential implications for Financial Services companies as a result of Brexit?
The biggest implication likely to hit Financial Services companies who are based in the UK or have a trading office in the UK is losing their passport access to the single market.
Financial Services companies have passporting rights to do business across the EU without the need to be established in each EU country. If this right disappears, businesses will need to set up a new structure for trading in an EU country adapting to changes to risk, management and regulation.
It is very unlikely the passporting regime will survive Brexit, regardless if it is a soft or hard Brexit because the EU will view the transferred business as a big win. Because we don’t know whether there will be a hard cutover after two years or a transition period, it is prudent for Financial Services companies to start planning to restructure their operations now to ensure they can still trade within the EU. This will mean moving all or part of its operations to a country within the EU so that it can continue to trade with other EU member states.
What challenges do Financial Services companies face when planning for Brexit?
The biggest challenge is not knowing what the end-state is until the negotiations are finished!
When implementing a business change programme, you want to know the desired outcome – what are we aiming for? The challenge with Brexit is the uncertainty. An unknown outcome, alongside a ticking clock is a huge challenge when implementing a programme of this scale.
In order to manage this obstacle, Financial Services companies should plan for the worst case scenario and adjust for any improvements based on the on-going Brexit negotiations. Work on the assumption that access to the single market will be lost for companies headquartered in the UK or operating in the UK and trading with countries based in the EU.
How will Brexit affect IT?
A restructure and move of operations to another country, by default has an impact on IT.
This is a one-off event that may have not been considered in IT’s mid to long term plans, therefore IT and the business will have to adjust and re-prioritise plans to accommodate a programme of this type.
Companies may also have to consider where their customer data is being held.
The activity is complex and must be executed in a well-controlled manner. It is vital to have the staff and expertise in place to plan and execute it quickly and effectively.
Should Financial Services companies be making plans now, considering Brexit will not happen until March 2019?
Businesses cannot afford to wait. It’s important for Financial Services companies to provide certainty to their clients so that their investment and revenues are protected when Brexit is implemented. If businesses can no longer write certain business transactions, their revenues and profits will be at risk from their competitors. Businesses must put a plan in place now to maintain their ability to compete in the market.
In relation to the execution of the programme itself, a major part of an operational restructure can involve migrating part or all systems to a new platform in a new real or virtual location to support the new structure.
Migrating systems to support an operational restructure can take a long period of time – in my experience, it can take up to 2 years to migrate large-scale systems with complex financial instruments and legal systems behind them.
What type of IT skills are required to deliver a Brexit Programme?
A programme of this scale must be well managed and requires people with strong programme management, planning, testing, migration and event management experience and skills, who are experienced in running complex programmes to tight timescales.
What advice could be provided to Financial Services companies who are currently managing a Brexit change programme?
It is so important to have a plan in place, supported by people who have the skills, experience and expertise to deliver success. For Brexit, where the outcome is unclear and timing is critical, it’s imperative to have these elements in place now in order to deliver this change by March 2019.