The submission of the ‘Article 50 letter’ by the UK on 29 March fired the starting gun for Brexit negotiations. The UK will depart the European Union (EU) on 29 March 2019 on terms which are, currently, highly uncertain, but will likely mean the UK no longer has access to the Four Freedoms.
The Four Freedoms of the European Union are the freedom of movement of goods, people, services and capital over borders.
This will oblige financial institutions with significant operations in the UK and the rest of Europe to plan for, and implement against, significant and complex change.
Regulated Financial Institutions with entities in the UK and the EU rely on passporting rights and the right of establishment to operate across borders. These rights could be called into question if the UK leaves the EEA and no equivalent arrangement is put in place.
Many firms will require new or revised authorisations. This is a critical challenge for organisations given the need to define a new model, obtain regulatory approval and implement all these new changes. Preparing for a new authorisation is a lengthy process and financial institutions need to act fast on this to prepare for the 2019 deadline.
The principle of free movement of labour and the benefits open to non-national residents may be challenged. This automatic right will no longer exist for EU and UK citizens.
Current approaches to the use of UK contingent and permanent labour will need to be reviewed.
Organisations need to have a plan to develop or secure these skills and resources, at a time when all other firms in the market will have similar needs — the talent pool may become increasingly smaller.
Understanding and managing the potentially significant tax implications arising from Brexit and the restructuring of their business to access EU markets will be critical for organisations
The UK will no longer be subject to the VAT Directive, which will create some frictional costs of complying with EU VAT rules going forward
Operation of direct tax directives for payments between UK and EU entities will fall away, with taxpayers needing to rely on tax treaties,
The hosting and processing of UK data in an EU country, or vice versa may need to be repatriated UK rights on agreements and frameworks derived from EU Data protection law could be at risk; the status of ‘offshore activities’ providing services to clients in the EU could be restricted.
International Financial institutions need to act now to prepare for Brexit. Get in touch with EY today to find out how we’re creating roadmaps for major financial institutions that may need to establish or expand their entities in Europe.