How has Brexit affected financial services?
Brexit continues to affect financial services both in the EU and UK. The positive and negative swings faced so far have led to a lot of uncertainty, with CFOs and Finance Directors attempting to look forward when it comes to business strategy and decision making.
Many CFOs weren’t fully prepared for the new requirements when importing and exporting goods to and from the EU. Rather than a single event, Brexit will see CFOs face a series of smaller obstacles over time.
The investment in Cloud-based accounting software will help finance teams effectively steer the ship. Automation will significantly reduce manual reporting and allow for more time to focus on strategy and how to keep on top of any further impacts. Speed and agility will be key for CFOs and Finance Directors as they continue to weather the changes that still lie ahead.
Brexit impact on financial services so far
There have been very limited provisions made for financial services in the TCA. Although largely expected, many financial service providers have already factored in the loss of the passport to their Brexit contingency plans.
The UK is now a third country and consequently UK-registered financial firms have lost the right to seamlessly offer their services anywhere in the EU single market. They now have no better access to the EU market than their peers in other third countries, such as the United States, Japan or Singapore.
The problem now is that there’s still uncertainty around how the treatment of financial services throughout the UK and EU will continue to evolve. Although the Joint Declaration shows that the EU and UK have committed to a future dialogue on financial services, there’s no clear path as to how this dialogue is going to take shape, or how it will impact the EU’s existing equivalence framework.
The provisions that were made for financial services in the TCA were not set in stone, and are set to be reviewed every five years. CFOs and Finance Directors should view Brexit as a process as opposed to a destination with the expectation that the treatment of finance services is likely to face frequent changes in tandem with the overall state of EU/UK relationships.
Past & future Brexit milestones
1 April 2021:
- Sanitary and Phytosanitary controls: UK traders importing Products of Animal Origin (POAO) or a regulated plant and plant product must now submit pre-notification and the relevant health documentation.
- In the event of no positive data adequacy decision by 1st July, the UK will be treated as a third country for personal data transfers, creating new legal requirements immediately and resulting in increased legal costs, interrupted data flows and reduced investment in data centres.
- After six months without a data adequacy decision, more UK companies will shift jobs abroad in data-intensive areas such as HR, and increasingly invest in data centres in EU countries in place of UK ones, as they see an increase in the loss of contracts with EU customers who no longer wish to deal with UK partners.
Movement of goods
- From July, the UK Border Operating Model will end, the full burden of customs declarations will become permanent, facing the full declarations at the point of importation and tariffs with additional paperwork and checks taking place.
- Without an equivalence and adequacy agreement, financial services will make further transfers of staff and assets to the EU or stop some EU business and move to non-EU locations to optimise their business models and react to the requirements set by EU regulators.
- From 31 December 2021, the UK’s grace period on CE marking will end, meaning that firms must have switched to UKCA compliance by this date (GB products only).
- Temporary easements on regulated manufacturing will start to wane, creating a new rush to complete adjustments.
- Some exporters will be prohibited by the cost and hassle of separate UK and EU product testing and cease to trade – reducing choice for consumers and competition that drives down prices.
- There are some concerns about the ability of existing UK testing houses to take on the additional load of products to be tested.
- The time-limited decision to give financial market participants 18 months to reduce their exposure to UK central counterparties (CCPs) will end in June 2022.
- The UK will need to re-open a number of rollover deals, unless already replaced.
- While UK and EU rules and testing processes will remain broadly the same for regulated goods in the immediate years after no deal, in the future divergence will occur.
- This will increase the barriers to doing trade across borders for firms as they will have to cope with new and different requirements being introduced unevenly across the UK and the EU.
- The grace period for providing all the data needed to fully register chemicals in the UK will expire.
- For the long-term, costs of double registration risk being unsustainable for many companies, creating potential for the UK to become a distinct market outside of Europe with a lesser offering of chemical substances.
Embracing new opportunities through Brexit
Brexit has created both uncertainty and opportunity for the UK financial technology sector with both the EU and the UK developing their regulatory regimes for the financial and accounting software sector. Both are also considering the launch of digital currencies in the coming years.
The UK government describes Brexit as the start of a new relationship with the countries of the EU, along with their inhabitants. Businesses that mirror this attitude as they carry out the required administrative changes moving forward might find the light at the end of the tunnel arrives more quickly.
There’s no doubt that preparing finance teams for a future in a post-Brexit world continues to be difficult due to ongoing uncertainty. However, there’s a lot of information and mechanisms available to help you make vital and necessary changes and ease your business into continued trading with EU businesses.
Get prepared for Brexit
For CFOs and Finance Directors looking to get ahead of the competition, it’s time to start looking to move to the right Cloud accounting solution to support the upcoming Brexit challenges that will be faced by financial services.
Our Cloud-based business management software, and Cloud-based accounting solution, are both here to assist CFOs and Finance Directors with preparing for Brexit. They are essentially 'Brexit-ready' systems that help businesses to seamlessly deal with ongoing changes.