In the short term
An immediate concern for companies will be whether they continue to meet capital and liquidity requirements. Have key warning indicators been breached and do contingency plans need to be enacted? Boards need to assess the impact on their strategies. Are disclosures required to the regulators/public and do you need to apply to the regulator for waivers because of technical breaches of regulations?
Boards need to act quickly and decisively to minimise the impact of this volatility on the business and to remain compliant with regulatory requirements.
In the medium term
We do not yet know what the process will be for extracting ourselves from the EU and the implications that might have for our trading relationship with the rest of the EU. In the medium term, the loss of the EU passport is likely to have the single biggest impact on the UK financial services industry. It may require UK firms to set up permanent establishments in other countries within the EU and similarly EU firms may be required to set up permanent establishments in the UK if they want to continue servicing the UK market. The details are not clear at the moment, but what is clear is that all firms affected need to start planning so that they can react quickly to the changes ahead.
In the long term
The full ramifications of this decision on the financial services industry both in the UK and the wider EU are still to be understood. Can the UK retain its place in the financial services industry outside of the EU and perhaps more importantly, will the EU continue in its current form? Will the UK make changes to the key European Directives driving our current regulatory agenda? As the answers to these questions emerge, the UK financial services industry will need to adapt and reform quickly.
Focus on the insurance industry
London is and always has been a major global trading centre. Its skill base and pragmatic culture should enable it to retain its position. The Lloyd's market is a classic case, with trading licences all round the world. Progress on this front will be an important part of the next two years of change.
Loss of the ability to sell insurance on the basis of a single EU licence will be an issue. Much depends on the country's renegotiation of trade agreements and EU countries view on the need to access entrepreneurial skills.
Regulation is likely to follow a Solvency II equivalence – since the early 2000s the UK has had a risk based framework. There may be scope for adopting a less detailed, overly-technical approach, which could potentially enhance the UK's attractiveness.
All in all there is time to observe the developments and react in a considered manner. A more important immediate concern is managing the underwriting cycle in the midst of investment market volatility. This is not the time to be deflected from proper discipline.
How can we support you?
Mazars will be working closely with our clients in the coming weeks and months to determine the precise implications of the vote for their business through this period of change. Please get in touch if you would like to discuss any of the implications of BREXIT.