With Brexit just around the corner, the UK and the EU are still struggling to reach a final divorce agreement; leaving organizations in the dark as to what exactly this will mean for them. A heightened sense of urgency is further created with the UK Government’s recent publication of a series of papers on what the potential impact of a “no-deal” scenario would look like.
Setting aside the politics, companies should approach Brexit as any other, but very real, business risk and should duly prepare for the potential legal impact it could have on their operations.
As widely reported, the banking sector is expected to be among the most affected by Brexit. Many EU companies (as well as private individuals) currently maintain some kind of banking relationship with a UK financial institution.
Such relationships can take many different forms; examples include:
- your company may have previously obtained financing from a UK bank;
- your company may be part of a UK based corporate group that has centralized its bank accounts with UK banks and/or operates a cash management scheme through a UK bank;
- a UK financial institution may currently play a role in managing your investment portfolio.
While the final outcome of the negotiations is still to be determined, it is clear that Brexit may impact your current banking relationships in various ways.
- First of all, Brexit will bring an end to the EU passport regime as it currently exists. The EU passport represents a key achievement of the single market, allowing members of the EU financial services sector to conduct cross-border business throughout the EU/EEA – either directly from the home member state or through a branch office - on the basis of their home country license. Whatever the specific outcome of the Brexit negotiations, it seems highly unlikely at this stage that the current passport regime will continue to apply. As a result, UK financial institutions need to look for alternative arrangements to engage in cross-border EU/EEA business from and to the UK, which may affect the way in which they conduct their daily business operations.
- Secondly, Brexit may also have an impact at the level of your contractual documentation. For example, existing EU regulations currently provide for a clear legal framework on conflicts of laws with regard to cross-border contractual relationships. This helps to maintain a uniform level of protection for parties across the EU. Following Brexit, it is still uncertain which rules (and level of protection) will apply going forward with regard to English law governed contracts, or when enforcing contractual rights in the UK. In addition, financial institutions may also be looking to modify certain contractual terms and conditions going forward, in order to anticipate future uncertainties surrounding Brexit (e.g. with regard to transferability of contractual rights and obligations or through the inclusion of so-called “hardship clauses” and/or other types of specific “Brexit clauses”).