Following the result for the UK to leave the European Union, the country now faces the largest overhaul of its legal system for generations, with tens of thousands of laws potentially affected from employment law to financial services, from tax to data protection.
We have prepared a short guide covering some of the key next steps. >
As preparations begin to determine the UK’s future, from both a political perspective and in terms of our future relationship with the EU, there are many steps that businesses can now take to protect their interests.
Our Brexit webinar covers the key issues impacting an international audience, including:
- What legal process will be adopted for separating the UK from the EU?
- Will pending EU laws be implemented in the UK?
- How can we protect our interests, both in the long term and in the interim period?
Dave Anderson: Well good morning everyone and good afternoon for our friends, clients and colleagues joining us from Asia. We are very happy to have you join us here today for the next in the BLP series of seminars and webinars relating to Brexit, what happens now.
My name is Dave Anderson. I’m a partner in the Brussels office of BLP where I have been working on Brexit issues with our team of experts led by my two colleagues here joining me today Chris Bryant who is a partner in our EU law and antitrust team, he splits his time between London and Brussels, advising on EU law, legislative and public affairs and Chris has been working on Brexit issues since the very beginning and Polly James who is a partner in our financial services and regulation team based here in our London office. She has spent time at the UK’s financial regulator and she advises clients on a range of regulatory risk issues including the impact of Brexit on financial, insurance and other companies arising from the Brexit issues.
Today we are going to structure this webinar in three sections to be able to make it clear for everybody.
The first thing we are going to look at what happened to try to explain what led to the Brexit and how we got there and the result.
The second will be what happens next in terms of procedure and timing and examples that we are going to provide from clients’ questions that we’ve had already to give you some very practical examples and situations, and third what can you do in terms of next steps to prepare options, influencing the process and some practical tips.
And then at the very end we have time for questions and so hopefully you can see somewhere on your screen there that there’s a box for typing in questions which we receive. Please feel free as we go through the webinar to mention or to provide to us questions as you think of them and we have reserved some time at the end to answer them and if we can’t get to them we will for sure get back to you with an answer at the conclusion of this.
So in terms of what’s happened. Companies around the world have of course noticed with great interest what happened here two weeks ago yesterday in terms of the Brexit vote and the decision to leave the EU.
This is a slide from the US on the weekend. We have a lot of other examples, the UK Asia Review talking about it, the China Daily talking about it and there’s a lot of information out there and a lot of questions which have been raised. So what we’re trying to do today is to really walk you through those and so really I’ll turn over to Polly first really to look at – can you tell us what happened, what is the vote and what was the result and what does it mean?
Polly James: So, the questioned that appeared on everybody’s ballot paper just over two weeks ago now was this: should the United Kingdom remain a member of the European Union or leave the European Union? And of course as we all know 52% of people voted to leave the European Union. And what is the status of that vote? Is that result final and binding is the question everybody wants to know.
When David Cameron came out of 10 Downing Street the morning that the referendum result was announced, he called the result a clear instruction from the British people. Now politically that may well be right, legally it’s not right at all. It has no legal effect, this referendum result, so for example the Government isn’t now obliged to start the process of taking it out of the EU.
Politically though of course it’s tremendously important and our leading constitutional lawyers are warning that the Government not acting on this vote would have very serious consequences in terms of undermining the value of democracy in the eyes of the British people. So although it has no legal effect it of course is something that the Government is going to need to act on.
Dave Anderson: And I’ve heard – I’m not sure I’m right – that there have been some legal challenges in this concept?
Chris Bryant: You’re absolutely right, there has been talk of a legal challenge being mounted to the Government’s approach to the result of the referendum. The question is this: who gets to exercise that right to take us out of the EU? Is it the prime minister and the Government on the one hand or is it the UK parliament on the other hand? This is a really major constitutional point on which there is a lot of disagreement. The Government takes the view and its legal service has taken the view that it is for the prime minister alone exercising his powers to take Britain or the UK out of the European Union. However certain constitutional lawyers, academics have argued that in fact it is parliament that should do so and unless and until parliament decides that we should leave the European Union then we should stay. There is talk of a legal challenge, it is likely to go through. I would not be at all surprised if the highest court in the UK – the Supreme Court – ultimately get to decide on this point before we actually move forward and that could take many months.
Dave Anderson: So it’s going to go all the way up to determine who really has the say?
Chris Bryant: I would not be at all surprised if it goes all the way up. Something this important is likely to go to the top.
Dave Anderson: So if the UK in the referendum – the people have chosen that the UK should leave the EU – Chris could you walk us through what is the current status of the UK in the EU so we can understand what they’re actually leaving?
Chris Bryant: Absolutely. I’ve got a slide here which helps to demonstrate what part …first of all just to be absolutely clear, when we talk about the UK – the United Kingdom – we’re talking about England, Wales, Scotland and Northern Ireland. And it is useful just to highlight this because actually on a political level one of the results of this is that the first minister of Scotland has said that this leads to a political position where Scotland could hold a further independence referendum. So you may recall that in 2014 Scotland held a referendum on whether it should be independent from the rest of the UK and they decided by a majority that they would stay a member of the UK. However because there was a clear – over 60% of the Scottish people wanted to stay a member of the EU whereas the majority of those in England and Wales wanted to leave the EU – the first minister has said “actually this gives us a fresh mandate for a further independence referendum”. So when we talk about the UK at the moment it’s all four of those nations, but it remains to be seen whether it stays all four of those nations. So that’s the UK.
Then the UK since 1973 has been a member of the European Union or indeed its predecessor the European Economic Community. The European Union comprises the UK and 27 other member states and that is the union of the countries - when we talk about the EU – that’s what it is. Those countries all work together and adopt common laws in certain areas largely to do with trade and commerce but also in relation to things such as labour law and the environment. So the European Union is the block of 28 countries. It’s also worth mentioning we have something else – the EEA – the European Economic Area and this is very relevant to some of the discussions as to what might happen afterwards after the UK has left. The EEA consists of the 28 EU countries but also three additional states: Norway, Iceland, Liechtenstein. And so that is the 31 countries who are all part of the EEA. The EEA has this thing called the single market. There’s been a lot of talk about the single market because some people consider it to be hugely important to business and to the UK’s economy, others find it controversial. The reason being the single market is based on free movement of people, capital, goods and services within the EEA so it’s established so there are no restrictions on people moving between those countries, providing goods between those countries, no tariffs, no customs controls etc.
Dave Anderson: Doing business wherever they want?
Chris Bryant: In most areas yes and certainly moving towards a single market for services as well.
Dave Anderson: So if that’s the position now in terms of the EU and the EEA, if the UK leaves the EU what might that look like? Are there some options?
Chris Bryant: So there’s a whole range of different options, a whole spectrum and in fact during the referendum campaign we probably heard pretty much every option and several non-existent ones as well. It’s worthwhile just highlighting the three main options, the first of which is the EEA which I just mentioned. That would mean from a practical point of view for those doing business in or with the UK, would actually mean the least almost certainly the least difference from a legal perspective. Countries who are part of the EEA so Norway, Iceland and Liechtenstein are bound by most EU rules in relation to business. So there are certain EU rules that don’t apply to them in relation to agriculture, fisheries for example, but virtually everything that concerns business applies to the EEA just as much as the EU. Now those countries don’t get a say in adopting the rules, they just simply have to take what’s given to them, but they apply those rules. So from a legal perspective that’s certainly the easiest option. At the other end of the spectrum you’ve got the plain vanilla world trade organisation relationship. So the relationship that the UK would have with the European Union would be exactly the same as say for example Liberia – the most recent WTO member – has with the European Union. It is simply based on the general agreement on tariffs and trade and the general agreement on trade and services and so that would mean that there are for goods there would be customs controls, there would be tariffs, there would be quotas that would be applicable and for services it would simply depend on the services commitments that have been given at WTO level.
The most likely scenario as most people consider to be the case and certainly I consider to be the case is somewhere between the two – a free trade agreement. So something bespoke similar to the agreements that say South Korea has with the European Union or perhaps the most likely model is that that has just recently been agreed between Canada and the European Union – it’s not yet entered into force but that’s probably the most likely model. Just to explain what that does: it leads the gradual elimination of tariffs and quotas for most goods – not everything but for most goods. So it would mean that if you’ve got a Canadian or a European product you would be able to transfer them between Europe and Canada without having to pay tariffs or duties. That’s the position in relation to goods and it’s quite possible the UK would end up with a similar relationship with the European Union.
Where the big question arises is on services. The most free trade agreements - and Canada is no different – don’t provide very much in the way of services, they’re generally relatively weak as far as services are concerned. They provide that the two parties won’t make things more difficult but they do not provide for liberal access in the same way that the UK has now for example in relation to financial services and in relation to other services. So there are lots of different options there and it’s very much a question of wait and see what is negotiated and what the positions of the different parties are, we don’t know that yet.
Dave Anderson: That’s interesting on services and we’ll come to that certainly in the financial area which is so important to so many folks and Polly will be able to help us on that. So that’s what’s happened.
So part 2 is what happens next? And this is a really important area for us to unpack. So could you guys take us through the procedure and the options and we’ve read a lot about this in the press so really interested to hear actually what happens next in terms of the leave process?
Chris Bryant: Absolutely. Well it’s worth thinking that the leave process is really thinking of the processes in plural because there are several different elements to it and there’s been a lot said about the European process which is called the Article 50 process which is the main way of extracting yourself from the European Union. But it’s very important not to forget what needs to happen on a domestic level here within the UK and also on an international level: what the UK might need to do within the auspices of the World Trade Organisation and in relation to international trade agreements.
So let’s take first of all the Article 50 process. This is the one that certainly here in the UK we’ve heard a lot about this, virtually everybody here in the country has a view on Article 50. And just to explain the context of this. This is a provision of the European Treatise that came into force in 2009 and it sets out how a member state of the EU can leave the European Union and it sets out the procedure. Before 2009 there was actually no procedure for doing this, it was a question of making it up as you go along. Now we do have a bit more certainty about it. And it all starts with the member state triggering the process by serving notice on the EU that it wishes to leave. An important point to note here: although we had the referendum two weeks ago and we had the decision of the people to leave, that is not the Article 50 notice. So we in the UK have not yet triggered that notice, so we are still a member and until we do so this procedure does not start. There’s a lot of talk about when we will actually do so. It’s a very political question when we will actually trigger the Article 50 notice. It depends on many factors not least first of all who will be the next prime minister. So as of yesterday we found that we’re down to the final two candidates to become the next leader of the Conservative party who will by default become the next prime minister and they both have very different views on when they would trigger Article 50, one of them wants to take the time a bit to establish our negotiating position and the other one wants to get on with it and trigger Article 50 immediately on taking office which would be in mid-September. But there are other political factors to take into account. We have the French presidential election taking place next April and May, there will also be a German election most likely September or October next year. So it’s possible that the new prime minister may want to wait for that. There’s also a question of whether we have a general election here in the UK. So a lot of political factors as to when we trigger it but there’s a lot of clarity that we do have about what happens when we trigger it.
What we know from Article 50 is that once the notice is served a two year negotiation period begins. Now as an important point to note here with the two years, it is very unusual – in fact almost unprecedented – that there will be a time limit for negotiating what’s effectively a trade deal. And there is a very specific reason for this. This was drafted precisely to give the upper hand to the remaining member states and to put the pressure on the member state that is leaving. So every single day that goes by once that notice has been served, the balance of power shifts between the different countries. And the reason for that is Article 50 provides what happens at the end of the two year period if we don’t reach an agreement and if we don’t decide to extend and I’ll talk in a second about the extension of those negotiations. If we do not have a deal and we don’t reach an agreement Article 50 provides that EU law, the EU treaties cease to apply to that country. So as of that date they would cease to apply here in the United Kingdom. It would mean that if you are supplying goods from the United Kingdom to the European Union then from that day you will be subject to all of the usual customs procedures, tariffs etc that apply to anybody from outside the EU who doesn’t have a trade deal. So that would kick in immediately, it would also mean there would be severe limitations on services that could be applied across border but also on a more human level it would mean that there is no deal agreed as to what happens to European nationals who live here in the United Kingdom or to UK nationals who live elsewhere in the European Union and that would be very much up to each country to decide whether they had the right to stay or not and we don’t have any clarity over that as yet. So that’s the kind of Armageddon scenario that could happen at the end of two years but as I mentioned there is the option to extend. Just to give you some context to this, it’s widely thought by most commentators and certainly I agree with this that two years is a very short space of time.
Dave Anderson: You said trading agreements typically take years and years.
Chris Bryant: They do – anything up to 10 years. To give you an idea, the EU/Canada agreement has taken 7 years. So 2 years is a very short space of time and it is very likely that’s going to have to take longer. Article 50 does provide for the right to extend the negotiations but – and this is a really important point – that requires unanimity from all of the other remaining member states. So any single one of them can veto that. And I think this gives a great bargaining hand to some of the smaller countries. If you are a small country who doesn’t have many votes when it’s based on population size and weighted voting, having a veto over something like this gives you a lot of power. So in order to extend we are going to have to ensure that everybody agrees on this. So we shouldn’t just assume it will happen, it may well happen but don’t assume it.
So then what happens say that we extend or say that negotiations go very, very well and we reach an agreement within those two years or afterwards if we extend, what’s contained within that agreement? Well actually we often refer to it as a withdrawal agreement, that’s being slightly lazy: it’s shorthand. We actually mean two agreements. On the one hand you have the withdrawal agreement itself which is like a divorce agreement, it basically deals with unwinding what happened in the past. So things like what happens to the status of European nationals resident in the UK and vice versa, what happens to things such as EU funds that have been committed for UK projects for example, and all of that needs to be unwound and that’s the sort of thing that would go in the withdrawal agreement. However on the other hand you have the second agreement which covers the future trading relationships and that’s what we talked about before the various different options, whether it’s being part of the single market, of a free trade agreement – that has to be negotiated as well. It is a separate agreement. It will require a different process for approval so the withdrawal agreement is based on majority voting whereas the future trading relationship depending on its precise content normally requires a unanimous vote and usually based on the content of these types of agreement require ratification in all the different countries and some of them under their constitutional requirements that requires a referendum. So there are different requirements there and one of the big questions around is whether those two agreements are negotiated consecutively or in parallel. Here in the UK there has been an assumption by pretty much everybody that we would negotiate them in parallel. So the idea being that they would enter into force at the same time. So we would withdraw and the future agreement would enter into force from day one. And that’s been an assumption here. That has been cast into a little bit of doubt over the last week or so. There was some wording that came out of the meeting of the other EU countries just after the result of the vote suggesting that their position might well be that actually the UK withdraws first of all and only when it has actually withdrawn on day 1 then do they start negotiating the future trading agreement and in the meantime we fall back on the WTO rules and simply be a member of the WTO. That’s a big issue that certainly the UK or anyone who’s doing business in the UK will want to pay a lot of attention to to find out how they are going to negotiate that because that will make a huge difference to anyone doing business if we do fall back on the WTO rules in the meantime you will want to know that sooner rather than later.
Dave Anderson: So two very different positions between what the EU and for example I saw in Brussels the Trade Commissioner saying that exact point which is that you have to withdraw and then we’ll talk whereas the UK are trying to put it all together which makes more sense for the UK and gives a better deal to the UK.
Chris Bryant: Absolutely and from my point of view I think that's probably the number one question that this should be settled before we get into any substance. It’s worth just mentioning finally it’s not an aside because it’s not contained within Article 50 that we’ve received a question from quite a few different clients and contacts that actually there is a fourth option that what happens if the UK decides it wants to withdraw that Article 50 notice and decide you know what guys we want to stay after all. Now Article 50 is silent on that point, it doesn’t say anything at all about it. But the general consensus amongst constitutional lawyers in the UK and indeed abroad and in fact just a day or two ago I saw that the French legal service agreed with this view as well, their view is that there is an implicit right within Article 50 to retract that notice. So until the day that you’ve actually left the EU you can decide you want to stay. It’s very clear what happens if you have left the EU, you have to reapply through the normal procedures. But until that day you can retract. I agree with that view, I think that is almost certainly the correct position. It is silent, it is implicit, it’s not expressed in Article 50.
Dave Anderson: That makes sense. So the UK under Article 50 serves a termination notice at some point to leave, there’s the negotiation period which could or could not be extended depending on what’s going on. Then you have what kind of agreement – the terms of the divorce as you say – and the actual trading arrangements – do they go together or do they go separately and the possibility of maybe withdrawing and then withdrawing your withdrawal and all these different possibilities in terms of this process. That makes sense. OK. So if that happens, Polly if would be really interesting to hear about the status of the law. What in this position are you telling people in terms of the different laws that we have and how do they apply?
Polly James: So Chris has just taken us through the European process for a withdrawal from the EU and there are also procedural requirements on the domestic front. So we in the UK would have to repel the European Communities Act 1972 which gives effect to EU law in the UK and it sounds nice and straightforward doesn't it – just to repel an act. It actually isn’t at all straightforward because our legal system is so deeply enmeshed in the 40+ years of EU law that we have been subject to which we now will need to disentangle ourselves from. We have in the UK regulations which are directly applicable in the UK without us having to do anything domestically to implement those. On the other hand we also have directives which are EU laws that need to be implemented in the UK by us passing our own national legislation. And in total it’s been estimated that there’s 80,000 pages worth of European law that we are now going to need to decide what we deal with.
So what does that mean then in terms of what needs to happen to our legal system in the UK?
Well, until the Article 50 process is finished and we actually leave the EU, EU law does continue to apply in the UK. And in the meantime we’re going to need to decide what we’re going to do with this 80,000 pages of EU law. At the point where we actually leave the EU, EU law falls away and we probably at that point won’t have finished the process of sifting through all that and deciding what we’re going to keep and what we’re not going to keep. And it’s important in this context to bear in mind that it’s not only what we want to keep that we need to be asking ourselves but what we’re going to be able to keep in light of the trade negotiations that we’re having with the European Union so for example the UK might be very keen to ditch the bankers’ bonus cap which has been very controversial. It remains to be seen though whether that would be an acceptable position for the EU in terms of the future trade negotiations. So there are two aspects to that process.
And then we’ll also be in a bit of a mess following Brexit in terms of our case law. EU case law is binding on our judges at the moment. After Brexit it won’t be. So we could technically have a position where our domestic case law conflicts with European case law even on the basis of legislating which looks very similar. And what that means for you if you’re an international firm operating in both the UK and the remaining EU states is that you will have to analyse your legal risk entirely separately of course even if you’re doing essentially the same type of business in the UK and in the remaining EU states.
Dave Anderson: So that is the front end of the what happens next. And here at BLP we’re being giving already lots of questions and you guys have been advising and the teams have been advising on these and I know that you’ve picked out some examples for us to really kind of bring us down to specifics and some practical examples and if we could look at a couple of those I think that would be helpful and to see what people are actually looking at.
Chris – do you want to go ahead and give us an example of the sort of questions people are asking?
Chris Bryant: So this first example is quite an interesting one because it is not at all obvious that this would be affected by Brexit but it is. This is an example of a global manufacturing company and they set up their European headquarters as a limited company here in the UK and they then established throughout the rest of the European Union through the use of branch offices, so it’s possible here within Europe that you can have branch offices that are all part of the same legal entity rather than subsidiaries. And there are lots of different reasons why you might want to do that, just in terms of your organisational structure, the tax position for example. And it’s quite a common structure here in Europe. It’s all based on a 1989 European directive – the branch directive – which allows you to do that and set up your office in one country and then branches in other countries. And it’s very unclear what will happen to that branch directive and the UK’s participation in it. And if that ceases to apply here in the UK – so if we’re not part of the single market – it certainly isn’t one of the directives that is top of the negotiators’ lists at the moment – if that ceases to apply then this company and others like it who operate in the same way may well need – are very likely to need – to reconfigure their corporate structure, it may be a question of moving the headquarters, it may be a question of setting up some subsidiaries instead. But it’s something that will need to be considered. It goes right to the heart of the corporate structure, and that’s just not something that many people had anticipated would be the case in terms of the effect of Brexit but it really does reach that far.
Dave Anderson: As you said this is quite a common structure for international companies who want access to the European market to use the UK as a launch pad, as a gateway into the EU to have access to the 500 million plus consumers to use the UK it’s a very good country for that, there’s a lot of good reasons to base here, there’s very credible institutions, respect, a lot of folks using English as well, so that can be something a really practical and common point I would imagine for a lot of clients.
Chris Bryant: Certainly it’s a common structure to do that and it’s something that will need to be watched very closely and anyone who is instructed in that way will need to be aware of what is happening. Certainly if Brexit is going to happen quickly which may happen depending on who becomes prime minister then we certainly need to be aware and be prepared for that.
Dave Anderson: Polly we’ve been hearing a lot about passporting. I’m very interested to hear about this. This sounds like a very important issue for financial services and firms in that sector. Do you want to give us some of the examples that you’re hearing out of that sector?
Polly James: So what a lot of financial institutions are most worried about following this vote is the impact on single market passporting. Now what is that? It’s actually two things. It’s under the freedom of establishment, it’s the right for financial institutions to establish branches throughout the rest of the EEA without having to seek local authorisation from the regulators and without having to hold separate pools of capital for each branch that it may establish and secondly it’s under the freedom of services, it’s the right to provide services on a cross-border basis into other EEA member states without having to establish a branch at all to do that.
It’s important to remember that this is an EEA right so it’s not only for the EU member states, it also extends to the three EEA states that Chris mentioned – Norway, Iceland and Liechtenstein. And the key importance of this to international financial services groups is that many of them use London as a hub to access European financial markets in the way that Dave just described.
So what’s going to happen to the single market passport post-Brexit?
Now at the moment we have a series of nine so called single market directives for financial services, each covering different types of financial services activities. And there’s no passporting at the moment for any countries outside the EEA, it’s purely a right for countries within the EEA. That is set to change a little bit from 2018 onwards when some new EU legislation comes into force which is commonly known as MFIR and MFID this is the Markets and Financial Instruments Directive the second one and the Markets and Financial Instruments Regulations. And these taken together are going to create a new regime for us giving firms from non-EEA countries the right to use their passporting rights in certain circumstances for the first time. But there are three important things to know about this MFID 2 regime that hasn’t been terribly accurately covered in the press. Now the first thing to realise is that this only relates to investment services that are actually within the scope of the MFID 2 regime, it has nothing to do with all of the other financial services that you might be wanting to provide so lending, deposit taking, insurance, payment services – I could go on. This is only for MFID 2 business. It’s also only relevant to services being provided to professional clients, it doesn’t work at all for people who are wanting to provide services to retail clients. And thirdly, and perhaps most importantly, being able to use this right at all is conditional upon the UK getting an equivalence decision from the European Commission and this is a decision to the effect that the UK’s legal and regulatory regimes are equivalent to those in the EU. That’s a discretionary decision so there are a series of criteria that the Commission needs to consider when it’s deciding whether to make that decision but there’s no requirement upon the Commission to give that decision if the criteria is fulfilled. It’s entirely in the Commission’s discretion whether or not to give that decision and it will be obvious from the context that there’s quite a political risk associated with that, we cannot assume that the UK will get an equivalent decision even though on the criteria set out in the legislation it does look likely that we should. So what we’re telling clients in relation to the single market passport is that the most prudent approach is to assume that there won’t be any single market passporting although as a result of the MFID 2 regime that I’ve just described there is some hope.
Some firms that we’re talking to are already thinking about forming a new European hub outside London just really to hedge their position to make sure that they are going to be able to continue to access to the single market following Brexit and everybody knows that what business hates most is uncertainty so we’re finding that firms are thinking quite hard about taking the risk of spending unnecessary resource and time and money on having a contingency plan to move out of the UK just for that certainty that they will be able to continue on a business as usual basis following Brexit.
Dave Anderson: So we’re going to need to watch what kind of activity you’re actually talking about and actually watch what kind of deal the UK gets in terms of whether it gets this equivalency or not and as you said that’s far from certain. So you see businesses and clients already making moves now to protect themselves way in advance? That’s already happening?
Polly James: People are thinking very hard about this and I expect people to be thinking increasingly about for example what is the minimum required presence that they would have to have in Europe in order to continue to access the single market, to what extent can they remain with the majority of their operations in London but move some operations to Europe and what is their minimum requirement that are going to be involved? All of these questions are ones that people are going to be asking at the moment.
Dave Anderson: OK that makes sense.
And Chris, a third question I think that we’re getting a lot from clients is the data protection and the data privacy regime and the effect that may have for companies that host data. And you’ve been getting questions from clients on this point right?
Chris Bryant: Yes, this is a concern for quite a lot of clients who have established in or have operations in various different European countries. It is quite common to transfer data between those countries so for example what one client we spoke to has a back office function in a different member state than its main operation here in the UK. And it transfers data quite freely, they share servers for example between the UK and different European countries. And at the moment that’s absolutely fine because it’s all part of the same EU data protection regime and there is no problem transferring data between different EU member states. There is however a complication when it comes to transferring data outside the EU. So to transfer outside the EU it has to be to a country that has an equivalent level of data protection that has been signed off by the European Commission in a similar way to financial services and not many countries have actually been signed off as equivalent and in fact we’ve seen a lot of controversy and a court case last year around the position in the United States and we have something called the safe harbour regime which was found not to be sufficient and a lot of complication was thrown in there. At the moment we don’t know what regime the UK would impose once we leave the EU. We know certainly from the discussions around the new general data protection regulation which is due to enter into force during 2018. We know from those discussions there were certain aspects of that the UK was not a huge fan of and so there’s the big question whether the UK wants to just adopt the position that it takes or whether it will adopt a regime that is equivalent and where data transfer can take place but it will seriously cause a lot of problems for a lot of businesses if they are not able to transfer data between the UK operations and others in the EU and we see all the time companies using shared servers for example and so there are all of these things to consider as well as potential implications of the Brexit.
Dave Anderson: Quite a big consequence coming out of that single market benefit in terms of this very practical point that so many companies have on a day to day basis for them and if the US has trouble complying I can imagine what it could be like trying to get back in as well for us here in the UK. So these three things are really important points: corporate structure points, financial services and passporting, data protection but of course this is the tip of the iceberg too isn’t it guys. As you said before if we went through all the areas we’d be here for the couple of years it would take to negotiate.
Chris Bryant: To give you a flavour of even over the last two weeks the questions we’ve received have related to food, they’ve related to chemicals, they’ve related to gambling services, basically pick of the sector of the economy you name it there is an impact in some way.
Dave Anderson: And we’ve been talking about employment, IP, state aid points other regulated sectors like you said that involve the Commission having a lot of oversight in the member states, in my area particularly of merger control it would change a lot, there’s a lot of stuff in contracts, distribution agreements, agency agreements, all these things have issues so particularly it brings up questions of where we’ve got to get to so please feel free to send us a question about that. But there’s a lot. And this is really stuff which we’re covering for clients across the firm as well.
So we’ve done the key steps. What happened in terms of Brexit? What’s next in terms of how it may look going forward in some practical examples? The next real point is what can you do or what can you help your clients do to prepare? And we’re really trying to break this down into three components that we see as the key points going forward doing legislative impact assessments, considering implementation strategy and contractual audits. I’ll just take a quick swing at each of these.
Let’s start with impact assessments. Is it really the core in terms of what companies need to do and helping our clients look at the areas of impact? What are the priorities, where are the key points for people to identify in terms of risk areas. We’ve certainly talked about some very important sectors here already and people are talking about moving and their contracts to look for the challenges but also the opportunities too. There are possible things that people can do that can be quite positive but it takes a whole list I was thinking of like a compliance audit – you need to look horizontally across the company to see which areas will be impacted and that’s what we’re helping with clients now.
Chris Bryant: We are and I should stress really the large focus of most clients that we’ve been helping so far and we’ve been talking to is the question of looking at the risks and the challenges but also with some clients they’re looking for the opportunities as well and seeing actually is there a piece of law that we have that derives from the EU that actually we don’t quite like. So Polly mentioned bankers’ bonuses earlier on there are certainly objections to those rules in some quarters. But looking on a business to business basis, are there certain rules that we don’t like that cause us a problem that actually we could seek to use this as an opportunity to change the way in which we do business?
Dave Anderson: And another example of an area that you advise a lot on is state aid for example the UK could now really do what it wants in terms of providing funding like what we could in America, people fight over state aid all the time it happens constantly and companies moving in on that and that would be another opportunity for a company to be able to take advantage of that additional funding as well.
So that’s the first thing that we’re doing a lot with clients, looking at all of their positions. The second one involves influence and strategy during the transition time that you guys outlined in terms of what’s going on now and as you guys mentioned there are a lot of things that are going to be talked about and a lot of areas a lot of sectors and a lot of chapters and portfolios that have to be looked at to negotiate and I think as you told me once Chris, it would be difficult to expect the government to be able to watch everybody’s back. I think it will be hard for them to do that and so advice that we’re giving that you guys are going out into the market talking to clients about is really don’t assume that the government and your trade associations can cover all the points that are important for your business. Think about getting out in front other ways that you can influence the strategy and in ways that we do here at BLP helping clients to establish shape, watch, giving it now, while it’s possible to have an impact. Is that right rather than waiting?
Chris Bryant: Absolutely, it’s a really crucial point there. At the moment certainly here within the UK the civil service team that’s being set up to deal with this is in the process of being set up the head was appointed last week, there’s a senior civil servant put in charge of it and there’s a senior Conservative MP who has been put in charge of obtaining views from various sectors of the economy, various political stakeholders in trying to gauge where the priorities lie, what the important positions? And that unit is seeking to pull together its first findings and first overview and report to the government by mid-September, by the time there is a new prime minister. And so now is the time that the civil service is preparing and so really now is the best time to influence – not the only time but it certainly it’s from our experience of helping clients to influence – if you can help during the preparation stage rather than the negotiation stage – your chances are a lot higher. And the preparation is taking place as we speak.
Dave Anderson: As you guys said before, spying those opportunities and those challenges to be able to influence them now through this here in London and in Brussels both because you’ve really got a two headed monster going on here in terms of the folks you’ve got to talk to and there are ways to do it. There are certainly effective strategies to be able to make sure to get your voice heard, your particular point begin to the process which I know you’ve been doing for a long time and we do in Brussels and in London. And really the last point then is again a very practical step which is with regard to contracts. Our companies have a myriad of contracts and leaving the EU definitely has an impact on many possible terms in what folks have in their contracts. So for example termination clauses. Does Brexit itself cause a possible termination or effective force majeure. There are choice of law provisions which you may want to think about and any references to EU law as well. Do those need to be amended? EU enforcement as well. Pricing – you talked about if the UK leaves the EU there could be a potential for tariffs and customs barriers and how does that affect your pricing clauses? Will your pricing change when you trade with the EU? Territorial provisions as well. Many contracts certainly ones that I work with with clients have a defined EU territory that will now need to be changed because it’s to account for the UK and that can also be an opportunity if you want to renegotiate your UK position. Distribution agency agreements as well will need to be looked at. So our contract team is very focused on this already advising clients on these points. They were pre-Brexit too. There are Brexit conditionality clauses which are being looked at and that is definitely a very practical area that all company lawyers will be dealing with on a day to day basis which we’re advising on as well and a very practical point to look at. So these are the big three in terms of what can folk do to prepare going forward so that we’re seeing right now.
The last point for us is that here at BLP our Brexit task force team is ready to help you on these fronts. The two experts that you see here focusing all of our specialist departments between London and Brussels offices and in our offices in other parts of the world as well.
We have time now at the end to see if there are any particular questions that folks have out there and there certainly is – if you don’t have a question now but you think of it later – all the email contacts are on your screen in terms of the material there the three of us or your BLP partner contact whoever you deal with. Very much feel free to send things through to those guys.
And a question I saw here Chris was what happens – there’s definitely been talk of what happens if – Article 50 be triggered and I think we’ve had questions here about should we wait, why do it now, what if it doesn’t happen and Polly you talked about financial services. I mean what’s your advice to clients about that in terms of do I move now or should I wait?
Chris Bryant: I think separating out each of the components there. The first question will it happen, will Article 50 be triggered? I think this is a political question but I think it’s almost certain that most people, most commentators are very clearly of the view that it will be triggered. We’re down to the final two as to who will be the next prime minister; both have said we will trigger it. The only question is of when and on what they might seek to achieve, what their process is. So we should certainly work on the basis that it is going to happen. The big question is that what that looks like and how those negotiations go and as I mentioned before there’s a saying that you often here around trade deals which is that it’s 80% preparation 20% negotiation and now is the time certainly here within the UK and also the team that’s being assembled within the European Council in Brussels, they are starting to formulate their position now and so certainly if you have issues where it’s a question of seeking to influence, then now is the time to be doing so. So I’ve had a few conversations with people over the last couple of weeks or so where they’ve said well we don’t know what it’s going to look like and I’ve said actually you don’t know what it’s going to look like but you can help to shape what it looks like. And sometimes there’s a lack of knowledge that you can actually do that and so sometimes people don’t realise that you can actually get involved and it’s not a question of being pushy. The government actively wants to hear the views of those doing business here in the UK. It wants to know and it’s set up this task force precisely to find out that information. So there are open ears for that and it’s a question of establishing where the risks like and where opportunities lie and seeking to get in front of those people now.
Dave Anderson: That makes a lot of sense.
OK, good. So I think we’ve come to the end of our session. If you need further information, on your screen there is clickview to the BLP Brexit guide which these guys did a great job bringing together and I think has some very useful practical information plus has all the contact details in there. Also on our website blplaw.com there’s a Brexit page as well which I think we will keep adding material to so please feel free to go to that. There are practice areas specific guides, there’s some taxation, I saw data protection, there’s financial services, there’s a range of things that we’ve put up there – environment, it’s great stuff, it’s all there and free for you to access whenever you want. And you’ll be hearing more from us.
As we learnt today this is a process. It is a marathon not a sprint. So please stay in touch as this goes through. We’ll be back to you as we get to key milestones throughout. To kind of reset and readjust and get more information so please stay in touch with us and we would just like to thank everybody from all around the world for joining us for our webinar today. I’d like to thank Polly and Chris for all the great advice that we’ve got, I’ve learned a lot and I think that we look forward to talking to everybody more about Brexit as we go forward.
Thanks very much everybody.
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