Brexit provides plenty of compliance opportunities

It has been a year since the United Kingdom held its referendum that signified the end of its membership of the European Union. But 12 months later, no one still knows—except for the U.K. government (apparently)—how Brexit will pan out, though the date it will happen is set: Friday, 29 March 2019.

Prior to the June election, Prime Minister Theresa May’s road to Brexit seemed clear—a “hard” Brexit with no deal on the Single Market or Customs Union, allowing the United Kingdom (in theory) to try to renegotiate new trading terms with the European Union based on mutual advantage once it leaves the 28-country bloc in less than two years’ time.

But since the election, which saw the Conservative Government lose its majority and agree to a coalition with Northern Ireland’s pro-remain Democratic Unionist Party, the future looks less certain. A “softer” Brexit—whereby the United Kingdom retains some degree of non-tariff trade with the European Union, with more flexibility about reciprocal agreements on the status and rights of EU/U.K. workers—could be on the table.

The U.K.’s decision to leave the European Union presents significant challenges for any business that trades with U.K. companies or has operations there. And while the U.K.’s Great Repeal Bill is meant to transfer all existing EU laws across into U.K. domestic law the day after Brexit happens to ensure continuity, it is unclear how long these laws and regulations will be retained.

With some justification, many companies refer to the situation as a “compliance nightmare,” and it is fair to say that compliance teams have their work cut out keeping up with what may happen, as well as the relatively short timeframe that they may have to implement the potential changes.

But more positively, many experts believe that there is a real opportunity for compliance to step forward and shine. Companies and their boards need assurance about what is going to happen, and compliance is the only in-house function that is primarily geared to focus on such wide-ranging regulatory issues. Brexit is therefore a “gift” that savvy compliance functions should not ignore.

“While Brexit undoubtedly throws up some significant compliance challenges for both U.K. and European firms, it also puts compliance very much on the agenda of the board,” says Eric Berdeaux, CEO at governance, risk, and compliance software vendor Oxial. “Brexit has brought compliance front-of-mind and that is good news for compliance teams.”

Already, recruiters are reporting an increase in demand for compliance professionals in London to help prepare companies—particularly financial services firms—for the post-Brexit transition. Recruitment agency Robert Walters has suggested that new, mid-tier compliance hires can see salary increases of 6 percent this year compared to last year.

“Brexit really does present a unique opportunity for compliance functions to show their worth, but they must also show business acumen. There is nothing quite like showing the board how much the organisation can be hit by fines for non-compliance. Boards may complain how much compliance costs them, but they complain even more when regulators slap fines on them.”

Bertrand Lavayssiere, Managing Partner, U.K., Zeb

Bertrand Lavayssiere, managing partner in the United Kingdom at Zeb, a financial services consultancy, says that compliance departments should take advantage of the fact that demand for experienced compliance professionals is high as companies make preparations for Brexit.

“Brexit really does present a unique opportunity for compliance functions to show their worth, but they must also show business acumen,” Lavayssiere says. “There is nothing quite like showing the board how much the organisation can be hit by fines for non-compliance. Boards may complain how much compliance costs them, but they complain even more when regulators slap fines on them.”

Lavayssiere believes that, due to the uncertainty around potential regulatory and legal changes caused by Brexit, there is a greater opportunity for compliance departments to get involved in strategic decisions at an early stage. For example, Lavayssiere says that compliance will need to advise boards as to the merits and demerits of setting up subsidiaries in Europe if their organisations need to retain offices within the European Union to operate effectively, as well as advise how they go about doing it.

Val Jonas, CEO at financial risk management consultancy Risk Decisions, says that Brexit is a big opportunity for compliance to show its skills and to be the “communicator” between the board and the operational sides of the business. “Risk is all about leveraging the opportunities from change, and who better to understand the regulatory and legal changes that Brexit will present than the compliance function,” says Jonas.

If compliance is going to add greater value and provide more assurance, however, Jonas says, then it has to get more involved in the business, understand how it works, and the key risks that it faces. “If the function is going to advise how parts of the business may be able to gain a competitive advantage from the changes that Brexit will create, it needs to know how these business areas operate, as well as get a better understanding of how they work within the existing regulatory framework and how they identify business opportunities,” she says.

According to Jonas, one of the key areas where compliance can make an important impact is in relation to providing the board with possible Brexit scenarios—for every possibility ranging from “hard Brexit” to a second referendum. “There are a lot of ways that Brexit can pan out—and not just in terms of ‘hard’ and ‘soft’ Brexit—and compliance needs to spell out these scenarios to the board and let them know what the potential impact could be of each of them. This will help the board have a better understanding of the situation and will also inform decision making and strategy,” she says.

MAXIMISE CCO STRENGTHS

Below are some of the ways that compliance functions may be able to use Brexit in their favour while also benefitting the organisation:
1. Act as “communicator” between the board and the business, and identify the risks and opportunities that changes to various regulations/laws may create for the business.
2. Conduct “scenario planning” to show the board and senior management how different versions of Brexit—such as “hard” and “soft” Brexit—may impact business operations. This will help inform executive decision-making and strategy.
3. Review the robustness of current compliance controls and policies, and test to see how agile the organisation is if compliance changes need to be made quickly. Use Brexit reviews as an opportunity to see how compliance processes can be improved, possibly through IT investment.
4. Demonstrate to the board that compliance is not just a “reactive” function—it can be proactive and can lend expertise to business strategies form the early planning stages.
—Neil Hodge

Jonas also says that heads of compliance can tell the board what other companies in their sector are doing to prepare for Brexit and how they intend to leverage the opportunities that the split from the European Union may create. Compliance can also conduct assessments and test current policies, controls, and protocols to see if they are robust and whether they can be changed quickly to respond to legislative and regulatory changes.

Chris Laws, global head of product, supply, and compliance at credit rating agency Dun & Bradstreet, believes that there are potentially multiple benefits of Brexit. “First, the complexities of driving this change will undoubtedly lead to boards considering an increase of team capacity and ‘up-skilling’ many people who may at first see Brexit as a threat to their roles,” he says. “But forward-thinking chief compliance officers will look to train existing staff and provide them with the tools and resources to increase their skills and knowledge in the areas of policy change and implementation and interpreting different market nuances,” he adds.

The second benefit, says Laws, is that Brexit can be a game changer for investing in IT to automate a lot of low-risk, process-driven work and freeing up the compliance function’s time so that it can help the board with more strategic issues. “Increased spend around process automation will be invaluable in the uncertain future, as skilled people can be shifted to tackling the complexities of understanding and implementing Brexit, while less risky work can be streamlined. This can drive faster, better customer experiences for low-risk clients and improve the profitability of those customers by driving quicker time to revenues,” he says.

Laws believes that a greater investment in compliance now in response to the changes that Brexit is likely to create could be part of an over-arching review as to how the organisation tackles regulatory and legal issues, especially around data management.

“Brexit allows an opportunity to highlight the benefits of better workflow tools or more integrated content into master data stores that drive the compliance need,” adds Laws. “Directing spend now toward technology and master data enables longer-term return on investment by implementing those tools to accelerate onboarding and expedite customer due diligence. Having this process in place will also help manage the inevitable rise in regulation pressure Brexit will create,” he says.

Laws believes that Brexit gives compliance teams an opportunity to review how well the function operates and how responsive it is to regulatory changes. But he also thinks that compliance departments will need to adapt how they operate and that they need to be more focused on identifying the opportunities that Brexit can create.

While Brexit presents tremendous opportunities for compliance functions to show their worth and sell their services and expertise to the board, however, it can also highlight any deficiencies that such departments might have. “The need for compliance departments to take on board the extra strain of coping with Brexit demands will place significant extra strain upon them and expose any weaknesses,” says Gary Dixon, partner at risk and compliance consultancy Momentum GRC.

“Brexit requires a wider skillset and an ability to look around the corner, but the ability to anticipate potential changes and visualise what scenarios may develop are not that common in your average compliance manager,” says Dixon. 

“The whole playing field is now changing, and those changes may be seismic. The very future of some regulated firms will be at stake, and it is vital that compliance functions adequately anticipate the changes that will be imposed since some will be fundamental and go to the heart of existing operations,” he adds.