The UK could slide into a ‘no deal’ Brexit because there has been little possibility to plan for alternatives, Christiane Leuthier, senior director of commodities at FIA, suggested at a round table on Brexit organised last month by trading exchange EEX.
Organisations are taking decisions on how to manage the risk, Leuthier said, but because there was so little information about how Brexit might move forward, and about the models that might be used, companies had very little ability to plan. But while it was impossible to prepare for the undefined models, most companies could be fairly sure of the parameters of a ‘no deal’ Brexit – so they could plan for that, and were doing so.
BEIS is also planning for it — the department’s Matthew Ramsden said a ‘no deal’ exit was “unlikely” but nevertheless added that the department had been working for two years on arrangements if it did happen.
In effect, that could mean British business and government is better prepared for a ‘no deal’ scenario than any ‘deal’ option that is settled close to the day of departure. The danger? If all parties are prepared for no-deal, it is harder to settle on another option, and it becomes seen as the de facto.
To move or not to move
Brexit is likely to have a large impact on companies providing financial services to financial service companies, because of EU regulations applying to such services, (eg Mifid). Leuthier said that now is the time that companies providing such services would take action on Brexit, whether that involves relocating, or re-examining contracts and relationships.
Leuthier explained that how much those service companies were subject to regulations depended on, for example, whether they were providing services to EU or third-party companies, and how much of their activity was within EU markets – all of which could change when Brexit happens. Energy companies may have to examine their relationships with organisations providing trading, clearing, credit and collateral and other financial services.
Financial service companies deciding whether to relocate elsewhere in the EU would have to allow six months to be registered by regulators in their new host country, to be ready for trading from 29 March 2019.