There are more questions than immediate answers following the “Brexit” vote, a decision that sees the United Kingdom leaving the unified Member States of the European Union. The vote was a nationwide referendum held on June 23, which posed the question of whether or not the United Kingdom should withdraw from the European Union. The campaigning on the vote was fierce, divisive, at times toxic and, throughout, too close to call.

The margin of Brexit victory was a slim one, with a 52 to 48 percent split. Although non-binding, it is expected that the United Kingdom will move forward, notify the European Council, and begin a process that will unfold during the next two years. British Prime Minister David Cameron has already announced he will step down from his post, amid a backdrop of spooked investors and plummeting stock markets around the world.

While the country has its own regulatory regimes, including policies set by the Bank of England and the U.K. Bribery Act of 2010, it was also a party to many EU-wide regulations which may either stay in effect, be revised, or cast aside in favor of entirely new regimes. Expect “confusion” to be the operative word for U.K. and EU companies, and for U.S. multinationals with either a physical or online presence.

“I don’t expect that there will be a mass exodus, but rather than expanding in the United Kingdom, companies are likely to do it in Europe instead, particularly for businesses which export to the European Union.
Christian Stadler, Professor of Strategic Management, U.K. Warwick Business School

“It is not clear what’s happening next, and businesses will be reluctant to invest,” says Christian Stadler professor of strategic management at Warwick Business School in the United Kingdom. “I don’t expect that there will be a mass exodus, but rather than expanding in the United Kingdom, companies are likely to do it in Europe instead, particularly for businesses which export to the European Union.

"In the long term, if the U.K. follows the Swiss model, which is essentially adopting EU regulation minus having a say in the decisions, this would be the better option for businesses as it puts dealing with the European Union more or less back to where it is at the moment,” he adds. “This will be an issue for some industries, like banking, as they won’t have much of an influence on regulation anymore. We see that in Switzerland for the pharma sector, for example. Politically this would be a difficult one to pull off, as people have to put up with the things they did not want—most prominently immigration.”

"If the U.K. takes a tougher stance on immigration, for businesses this will be a disaster as the European Union will retaliate,” Stadler says. “Access to the European Union will become difficult. For some companies this means doing business in Europe won’t be attractive any more. Others will have to deal with complicated bureaucracy. In short: a nightmare.”


The following is a joint statement regarding the Brexit vote, issued on June 24 by Martin Schulz, president of the European Parliament, Donald Tusk, president of the European Council, Mark Rutte, holder of the presidency of the Council of the EU, and Jean-Claude Juncker, president of the European Commission.
In a free and democratic process, the British people have expressed their wish to leave the European Union. We regret this decision but respect it.
This is an unprecedented situation but we are united in our response. We will stand strong and uphold the EU's core values of promoting peace and the well-being of its peoples. The Union of 27 Member States will continue. The Union is the framework of our common political future. We are bound together by history, geography and common interests and will develop our cooperation on this basis. Together we will address our common challenges to generate growth, increase prosperity and ensure a safe and secure environment for our citizens. The institutions will play their full role in this endeavour.
We now expect the United Kingdom government to give effect to this decision of the British people as soon as possible, however painful that process may be. Any delay would unnecessarily prolong uncertainty. We have rules to deal with this in an orderly way. Article 50 of the Treaty on European Union sets out the procedure to be followed if a Member State decides to leave the European Union. We stand ready to launch negotiations swiftly with the United Kingdom regarding the terms and conditions of its withdrawal from the European Union. Until this process of negotiations is over, the United Kingdom remains a member of the European Union, with all the rights and obligations that derive from this. According to the Treaties which the United Kingdom has ratified, EU law continues to apply to the full to and in the United Kingdom until it is no longer a Member.
As agreed, the “New Settlement for the United Kingdom within the European Union”, reached at the European Council on 18-19 February 2016, will now not take effect and ceases to exist. There will be no renegotiation.
As regards the United Kingdom, we hope to have it as a close partner of the European Union in the future. We expect the United Kingdom to formulate its proposals in this respect. Any agreement, which will be concluded with the United Kingdom as a third country, will have to reflect the interests of both sides and be balanced in terms of rights and obligations.
Source: European Commission

Among the questions that will await either answers or a strategic response:

How will negotiations between the European Union and U.K. proceed? Will other countries declare their exit as well?

How will the U.K. regulatory regime differ from EU rules? Will the enforcement regime change?

What will take place regarding intellectual property protections, consumer protection laws, life sciences and environmental rules, and employment law?

Will the EU’s data privacy and protection rules be recast, and what will the exit mean for the still controversial U.S./EU safe harbor agreement for data transfers?

What of the EU General Data Protection Regulation, and its long-term approach to citizen privacy?

In what ways should companies begin analyzing country-to-country data flows and cyber-security efforts?

Will there be changes or expanded authority for the Financial Conduct Authority?

What’s the future of MiFID II (the Markets in Financial Instruments Directive) sweeping financial regulations intended for the EU? How will the European Securities and Markets Authority and European Banking Authority adapt?

Will sanctions regimes remain the same or differ among the U.K. and Member States?

What effect will there be on EU competition law, M&A regulations and reviews, and anti-trust oversight?

Will business face a dual-track process for disclosures in the European Union and the United Kingdom?

What changes, if any, will there be to the EU’s REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) and RoHS (Restriction of Hazardous Substances Directive) requirements governing hazardous substances? What other environmental protocols may change?

Will the U.K. exit lead to any changes to the EU’s recently agreed-upon conflict minerals framework?

How will the EU exit affect trade agreements, both existing and future?

For cross-border swaps deals and other financial transactions how will Brexit affect equivalence standards and substituted compliance agreements?

U.S. companies might do well to brush up on Europe-focused risk mitigation strategies and risk-related disclosures to investors.

“For the U.S. economy, Brexit will at the very least lead to increased volatility in financial markets,” says National Association of Federal Credit Unions Chief Economist Curt Long. “Fed action is likely on hold until the fourth quarter at the earliest. As for credit unions, they should prepare for the present interest rate environment to persist for some time, as normalization is bound to proceed on an even more gradual path than the Fed has previously indicated. Credit unions are also likely to see a repeat of the second half of last year when market volatility led to a surge in share growth.”

London is the preeminent financial center in the European Union and crucial to the U.K. economy. “Post Brexit, financial services firms may be freed from the ‘single European rulebook’ and the supervision of the supervisory authorities—European Securities and Markets Authority, European Insurance and Occupational Pensions Authority, and European Banking Authority—with the latter currently based in London),” says a client alert from international law firm Dechert. “The United Kingdom may look to change some requirements it has never much liked but, subject to the shape of the final deal and any assessments of equivalence, firms may also lose crucial beneficial features, such as passporting rights.”

Asset managers will need to “consider how their current client and distribution arrangements will be impacted if the United Kingdom becomes a ‘third country’ for financial services purposes,” Dechert adds. “Understanding how to make best use of third-country access rights, national private placement regimes, and targeted restructuring will give greater certainty to managers and their funds during the period of negotiation and under any new settlement.”

Dechert’s advice to companies is embodied in a series of questions:

Have we identified the potential changes relevant to our business?

Will those changes be an opportunity for us or a risk (or both)? Will those changes equally affect our competitors?

Are there any steps we could or should be taking immediately after a vote to mitigate adverse impacts?

Have we done enough to reassure our investors that we have considered and taken measures to best prepare for any anticipated risks?

How will the legal and economic uncertainty of the negotiation period impact on us?

What do we want the priorities to be in the negotiation of U.K./EU future relations for our sector? Are there particular EU laws that it would be important to us that the United Kingdom should retain or replace?

Do we rely on any EU free-trade agreements with third countries, and how would we be affected if the United Kingdom ceases to benefit from them? How can we prepare for and mitigate the impact?

“With Brexit, companies will want to understand the impact of the loss of any investment—from the EU or from private investment in infrastructure—as well as the potential fragmentation of the regulatory environment in their particular sector, the firm advises. “Understanding the impact of existing bilateral investment treaties and the protections they afford can help firms to plan for and mitigate the potential risks of a Brexit.”

Continue the conversation at Compliance Week Europe: 7-8 November at the Crowne Plaza Brussels. Join us as we look at changes in global anti-corruption regulations, slave labour risks in your supply chain, and how to detect fraud, to name just a few topics. Learn more