Our Approach to Brexit

How you feel about Brexit is no longer relevant. The British people have voted for it and it is going to happen. Short of a political earthquake, the situation will not change.

Unfortunately, that’s about all we can say about Brexit with any degree of certainty. Many of the most basic considerations that could provide greater clarity for business – in or out (of the Customs Union), timing (including the transition / implementation period), hard or soft (like a boiled egg) – remain under discussion.

Our assumption is that Brexit day, 29th March 2019, will be a legislative event, a damp squib, and nothing much will change for British business and their employees until after the 2 year transition / implementation period, currently the end of March 2021. This leaves 3 years for businesses to plan and execute their Brexit strategy. (We discount for now the possibility of a hard Brexit with no transition period at end March 2019 because we believe its impact would be so severe for both the UK and the UK’s main trading partners in the EU.)

Recently, we have attended a number of management consultancy presentations claiming that Brexit strategy is complex, uncertain, mysterious, difficult and/or fraught with risk. We think this view is rubbish, a very thinly disguised effort to frighten clients and generate fees.

In our opinion, high level Brexit strategy is very simple: it is a separation of existing business functions that must remain in the European Union. Ringfencing requirement and business function divestments are other examples of separations.

The implementation of Brexit strategy is also very simple. We set out here our 9 step no-nonsense approach: the first 3 steps focus on strategy; the remaining steps on delivery.

  1. Understand the threat that Brexit poses to your business

    What profitable business activities do you undertake that must be conducted in the EU? What customers might you not be able to serve from outside the EU? Are there potential tax or customs tariff implications that could reduce your margins?

    The answers to these questions will help you to quantify the impact of Brexit in monetary terms if no action is taken, and help you to define the scope of your Brexit strategy and secure implementation funding.

  2. Choose a business location in the EU

    This decision is easy if you already have a place of business in the EU (outside the UK).

    If your business is located solely in the UK, or your other EU locations are not suitable, you have a number of options, e.g.:

    • Many companies have chosen Frankfurt (der große Brexit-Gewinner bisher!) because of its central European location, proximity to the ECB, and the very, very remote likelihood of Gerexit (Germany’s departure from the EU).
    • o Some companies pick a location that also provides some tangible business benefit, e.g. Dublin, a culturally similar English speaking location close to London with a temptingly low corporation tax rate.
  3. Create a Brexit business case

    Use the output of steps 1 and 2 to create a Brexit business case and secure funding for delivery.

    We think steps 1-3 could take up to 6 months, and deliver a clear Brexit strategy with funding for implementation. That leaves 2 ½ years to mobilise a programme of work and deliver the Brexit strategy.

  4. Setup a new legal entity
    • Legal / Company Secretarial – set up a new legal entity (e.g. a branch, a limited company, etc.) in your chosen EU location;
    • Regulatory – seek regulatory approval, possibly a banking licence, to operate in your chosen EU location;
  5. Define how the legal entity will operate
    • Operating Model – document how the new legal entity / location will operate, the scope of client products and services, business processes, supporting technology changes and team structures;
  6. Make the necessary technology changes
    • Technology – commission new technology platforms, or make changes / configure existing technology platforms to support the new operating model. For example, configuration of a new branch in a core banking platform, setup with payment schemes, etc.
  7. Setup the new organisation
    • HR – hire new staff, and/or relocation of existing staff, for the new location, satisfaction of regulatory requirements for senior staff, etc.
  8. Test everything
    • Testing – not just technology testing (important in itself), but testing of the operating model to prove that the business processes, supporting technology and team structures work together as intended;
  9. Manage customer expectations
    • Customer Communications – clear, constant communication with, and support of, customers setting out what business is moving, why it is moving, and the impact it will have on them;
    • Customer Migrations – migrations of customers to the new legal entity, with all of the hand holding and support that entails, e.g. close old account, open new account, etc.

Valentia Partners assists Tier 1 banking clients in the implementation of Brexit style separations, as described here, and is currently assisting two clients with their Brexit strategy and implementation.