EACT Summit 2019: Brexit - All Hands on Deck as The Clock Ticks Down

by Alain Chaigneau, AFTE

Panellists

  • Andrew Gray – PwC

  • François Masquelier – RTL

  • Charlotte Morgan – Sumitomo Mitsui Banking Group Europe

  • Barbara Shortall – Northern Ireland Water

  • Neil Wadey – BAT

 

Brexit: the long and winding road for corporate treasurers
It is a matter of fact that the long-term relationship between the UK and the EU will change. If an agreement on the exit deal is reached before the end of March, there will have to be an extension anyway. And any deal will take some time to be formulated. So, a transitional period towards December would be probable. However, on the other hand, if Article 50 is triggered, the UK and EU regulators have clearly explained that plans would be put in place, assuming Brexit will mean the end of ‘passporting’ for financial services. There will, however, be licences to enable British banks to do business with banks in EU countries and preserve the continuity of service.  


Most of the large international banks have spent millions of dollars on ensuring their operational capabilities in any event. It is, however, another matter for corporates. For example, the legal paperwork that exists between banks and their clients has not been completed. This is due to one main reason: owing to different legal jurisdictions, new contracts for multiple banks will have to be signed and various deadlines will have to be renegotiated. Obtaining access to banking arrangements will be a critical issue. 


Fortunately, some of the technical issues of Brexit, such as access to stock exchanges and clearing facilities, have largely been solved. However, will the banks still be able to provide the same spread of financial products as they have been? Will continuity of service be maintained if Brexit does indeed happen? 


For Northern Ireland, the Brexit issue reminds us that economic prosperity relies on the free movement of goods, services, capital and people between Northern Ireland, Ireland and the UK. Irish companies have strived to preserve services given any scenario. They have worked closely with their suppliers, the UK Government, and local authorities, to find a way to keep business running smoothly.


Most multinational companies (MNCs) with bases in the UK have worked with their main counterparties within the banking and financial systems to ensure they can continue to do business together. Financial markets will continue to operate even if Article 50 is invoked. The continuity of access to British clearing houses will be preserved. This is a key point because most transactions are booked in the UK. 


Most large British companies don’t foresee any particular risks in terms of funding. However, dealing with their supply-chain businesses poses far more critical issues. There will be a wide range of administrative changes to organise including establishing entities for VAT registration and the payment of duties in some countries. 


For continental European groups with subsidiaries in UK, Brexit will not be the end of the world, even though reporting for the European Market Infrastructure Regulation (EMIR) and carrying out other bank confirmations will be necessary and demanding. For their financial instruments, some of these groups were asked by their banks to replicate their International Swaps and Derivatives Association (ISDA) agreements – leading to further legwork. 


The UK ACT has carried out a lot of work to support corporate treasurers to prepare for Brexit. The association runs seminars, webinars, and has sent questionnaires to its members throughout the process. The ACT also provides regular updates on survey results so members can benchmark themselves against other corporate treasurers.  


But there are still many issues for corporate treasurers to address because a number of contract changes will be required for them to remain legally valid. Different regulators have different views. The UK Government must ensure that strong liquidity will be maintained in the banking system and that links with banking services in every country will continue, uninterrupted.

Key takeaways

  • Owing to different legal jurisdictions, new contracts for multiple different banks will have to be signed and different deadlines will have to be renegotiated.

  • Will the banks be up to providing the level of capacity of financial products like they do today? Will continuity of service be possible after Brexit? 

  • Financial markets will continue to operate even if Article 50 is triggered. The continuity of access to British clearing houses will be preserved.

  • The UK government must ensure that strong liquidity will be maintained in the banking system.