Act early to engage with Brexit uncertainty
You only need to dip into the news each day to appreciate that there remains an enormous amount of uncertainty around almost every aspect of Brexit. Not only is the UK negotiating with the EU it is doing so against the backdrop of political infighting within both the Conservative party itself and across the political spectrum. However we do know a few things and just to summarise these:
- Article 50 was triggered on 29 March 2017 with a two-year notice period for withdrawal.
- The first phase of negotiations was finalized on 8 December 2017.
- The deadline to settle the withdrawal agreement is currently October 2018 to enable ratification prior to the date on which the two-year notice period ends – 29 March 2019 – there are significant political hurdles to be cleared to achieve this.
- There will be a transition (or continuation) period that will run from 30 March 2019 to 31 December 2020 – during this period negotiations for the relationship agreement setting out the trading arrangement between the UK and the EU will continue with the aim that it will become effective when the UK leaves the EU – 1 January 2021.
Given the above-referenced uncertainty, many of the key terms of these agreements are as yet unknown. The impact on the financial services sector is particularly acute given its importance to the UK economy and the City’s position as a leading global financial centre. Both sides of the table accept that passporting will end when the UK leaves the EU. Following this, the UK is advocating mutual recognition while the EU members are split between those advocating the current limited equivalence regime and those arguing for freer markets and enhanced equivalence or even mutual recognition.
Most of our clients have established some level of project to address Brexit and for some approaches are beginning to emerge. Within the financial services sector, for example, our clients may be looking at a range of things: consideration of branch structures, new subsidiaries/entities, establishment of funds in the EU, looking at third-party providers and their provision of services and repapering. In-house legal is a key component of such projects and this is putting or will put a substantial strain on existing resources with the need for other solutions. This may be exacerbated by the shape of a legal function that may be focused on delivering business-as-usual work but not be shaped or equipped to deliver such a significant and potentially complex project. One obvious solution is the bolstering of the in-house team through interim resource, often drawing on enterprise-wide project budgets to support this.
Through our experience within ES Agile, we have seen the emergence of specialist skillsets in recent years in connection with large change projects for example MiFID II, ringfencing and GDPR often combining deep product knowledge with project management – indeed specialist legal project managers are in greater demand than ever as it is recognised that legal skills alone are not sufficient to deliver such a project successfully. Indeed, we see legal consultants generally enthusiastic to deliver projects of this sort given that it is transformational but with a defined timescale. However, the resource is finite and Brexit has the potential to apply the greatest demand of all. We would therefore encourage our clients’ in-house teams to act early to establish the resource required as leaving things too late may risk a lack of resource. Of course, as an alternative, suitable in-house lawyers may be transferred onto project teams with their roles ‘backfilled’ by interim resource – this can have the added advantage of ensuring valuable team members are challenged with new opportunities and also leverages their institutional knowledge.
As well as the more strategic project input and the need for subject matter expertise, Brexit will throw up a very significant requirement for other levels and types of input – equally crucial to a successful outcome. Different skillsets are required at different stages of large regulatory change projects. Initially, project teams may require the senior technical expertise that is strategic, putting the building blocks of the project strategy and regulatory relationship in place. As this stage completes, work may become more delivery focused and require a different skillset. The strength of using contingent resource is the flexibility to put in place the right skillset for the right periods of the project, and change swiftly when needed. The consultants used at the start of a project may not be those needed to operationally deliver the project itself. Managing knowledge transfer then becomes key in ensuring projects are efficiently delivered while resource changes during the project lifecycle.
ES Agile can provide that continuation of knowledge sharing and briefing, so that, although consultants may change, there is continuity in knowledge transfer. Clients can resource a project flexibly, with different skills, pricing levels at different project stages, with the safety that the knowledge drain can be mitigated by working with ES Agile and its relationship processes. This can extend to the volume contract change aspects (repapering) and while this may involve seeking interim resource at the more junior or paralegal level, it may also involve the outsourcing of parts of the work to third parties who can help support the data cleansing and apply their own technology and resource in delivering the outreach. This aspect can take a surprising amount of upfront time (data quality is often poor in advance of any repapering outreach and contracts may be difficult to retrieve or out of date) but if properly done can make for a very smooth and efficient repapering. Again we would recommend that these aspects are addressed early. Within Eversheds Sutherland, we often find our clients deploying various solutions here and seeking junior resource through ES Agile alongside the more senior-specialist resource referred to above and also utilising our technology enabled outsourcing business ES Ignite, which has tremendous recent experience in large repapering projects.