In the aftermath of Brexit, retaining access to the EU market will be a top priority for financial services firms, which may mean creating or expanding entities in parts of the EU including Dublin.
For some financial institutions, there is a certain level of reticence around taking the required actions to prepare for Brexit, largely due to the continued ambiguity around whether it will be a hard or soft Brexit, and what that might look like.
Here, we look at some of the common questions organisations EY work with have been asking.
This question comes up frequently, and it reflects the lack of clarity companies are experiencing as the Brexit process unfolds. Organisations across the UK, Ireland and the rest of the EU, are firmly into the analysis and decision-making stages, and in many cases carrying out the extensive background work that needs to take place before applying for a licence from the financial services regulator.
There is a challenge for organisations in that we are facing a protracted period of uncertainty and volatility. Although it’s tempting for some organisations to try and wait it out and hope for further progress in the negotiations before taking action, in practice that is simply not a feasible way to prepare for the challenges that Brexit will bring.
The critical path to readiness means that organisations must start now or risk being late for the March 2019 deadline. While much of the analysis to date has focused on client impact, other core considerations include people and talent management, taxation, and legal implications.
The key criteria emerging is ‘Where do I have an existing entity or presence, upon which I can leverage?’ Starting from scratch is more difficult, and creating multiple regulated entities could cause confusion, duplication and added cost.
The process to establish a regulated financial entity in a new location, and to migrate clients and business, is complex, resource intensive and a time-consuming process.
To estimate a generic timeline is impossible, as it depends so much on the particular scale, complexity and preparedness of the institution in question. The process of regulatory authorisation for businesses can take six months after the submission of an acceptable application, however the pre-work for an authorisation is the difficult part, and can take far longer.
Hence, the 20 months to March 2019 is not as far away as one might think.
This is a question that comes up a lot and I want to address it very directly; it’s the wrong mind-set, and the wrong question to be asking. Now is the time to be putting in the building blocks for the new European financial institution, and winning hearts and minds. It is imperative to understand that establishing trust as a financial institution in Europe with the regulator will require substance, robust governance, infrastructure and capital in order to demonstrate that prudential and conduct risk is being appropriately managed.
These decisions will provide a blueprint for Irish organisations to meet the challenges, address the risks and leverage the opportunities that are to come from Brexit. The regulatory landscape across Europe currently has differences, but we are seeing evidence of a strong shift to regulatory convergence across all financial sectors, some of which will start to eliminate opportunities for regulatory arbitrage and will create a level European regulatory landscape.
Therefore, the requirements on substance, governance and business operating models are likely to standardise over time. The decision on a European location should be strategic and made for practical reasons; as such, the challenge is to take those decisions that are needed now to adapt to a hard Brexit in 2019, without the benefit of hindsight, and to make those strategic decisions on a ‘no-regrets’ basis.