Last week Governor of the Bank of England and Chairman of the G20’s Financial Stability Board, Mark Carney said London is “effectively, the investment banker for Europe.”
Many believe companies and financial institutions should move their trading to the continent, while others believe this is non-sensical given London’s capital position globally and in the markets. Some companies, such as Goldman Sachs, HSBC and UBS, have already confirmed the eventual moving of staff and trade abroad, once the UK leaves the EU.
At the same time, the UK is faced with a lack of skilled labour, and due to the uncertainty surrounding changes in immigration law and the movement of employees or recruitment across the continent, bosses of big companies such as Barclays are calling for the freedom to recruit freely outside of the UK.
This week Finance Monthly hears Your Thoughts on the moving of business to the EU post-Brexit, and below are some comments from reputable sources within the business sphere.
Bertrand Lavayssiere, Managing Partner, zeb:
For those institutions with EU clients in their roster, it is more than likely that they will have to move to the EU post Brexit. However, there are a few buts…
One of the critical aspects is ‘passporting’. At present, banks can operate within the EU under UK regulations with relatively light approvals required from local regulators. This is of key importance for large sectors of the industry, such as asset management, where more than a trillion GBP is under management for EU-based investors, corporate lending, reinsurance and securities trading platforms, to name just a few. If this is maintained – which seems unlikely today – then the need to move is not crucial.
The long-standing cooperation between EU and UK regulators could ease some of the pain if governments agree that joint efforts to maintain alignment will help the overall goal of financial stability. Furthermore, many of the pertinent regulations are global anyway – those from the Basel Committee or the IASB, for example.
With regards to the London market, there are a number of platforms for specific product lines (foreign exchanges, swap contracts, equity derivatives, etc.) to facilitate compensation, settlements of trades among market players, and volumes to ensure liquidity. In simple terms: London is the place for such platforms. Disagreements have already taken place with regards to whether those platforms could remain in London. If the decision is yes, it will be business as usual. If, however, the answer is no (the most probable outcome), then the trading platforms and back offices of stakeholders have to move. This includes the day traders and market makers who are crucial for the liquidity of the market.
There is a whole list of further variations on this issue. But all in all, it is essential that a financial institution with clients based within the EU considers its strategic options as of now. Establishing a presence in the EU needs at least 18 months from a regulatory stand point. As many EU regulators require a fully-fledged decision making unit through proper governance, the analysis of the changes in delegation of authority schemes and the assessment of potential human resources impacts must be considered early on in the process.
Paramount in the decision-making process should be the institution’s business potential, to follow their customers, and ongoing requirements, rather than solely the regulatory aspects.
Ben Martin, Founder, The Brexit Tracker:
Moving your business away from the UK is a major undertaking. Perhaps you were considering this prior to the Brexit referendum or more likely, you believe leaving the EU will make your business operations untenable. But before taking action, we suggest you calculate and monitor the financial impact of Brexit on your firm and compare this to the emotional ‘pull’ of moving to the EU.
Here’s our 5-point plan:
- Calculate how Brexit has already impacted your firm. From over 390 economic indicators we’ve reviewed, the biggest market-related change has been GBP Sterling dropping 15% (now 12% weaker.) How has this impacted your business?
- Continually assess and record how new facts surrounding the UK/EU relationship will impact your £ calculations
- On relocation – consider how you will continue to serve your UK customers. With a weaker GBP, your UK sales are likely to be worth 12% less
- A move will impact your business banking. UK banks/lenders will need convincing of the merits of a move (and the enforceability of their security) to continual their financing
- Consider your existing and new competitors – will a move provide an advantage to you or them?
In summary, firms need the full “Brexit facts” before undertaking a move to the EU – as the facts are in short supply, they should start their own Brexit monitoring system.
Oliver Watson, Executive Board Director for the UK and North America, PageGroup:
As is to be expected, multinational businesses are more cautious than UK SMEs when it comes to hiring in post-Brexit Britain – and, as I see it, there are two reasons for this.
With a variety of other investment opportunities elsewhere across the globe, large international businesses – who are under no obligation to invest in the UK – have the ready option to divert investment to other more certain markets. As a result, their talent acquisition will naturally become focused in a different direction or geographical location.
However, where SMEs generate the bulk of their revenues in the UK don’t have that option – they just have to get on with it. This means while multinationals are feeling cautious about UK hiring, for SMEs it is often business as usual. This is a pattern we’ve seen time and time again in the face of uncertainty.
Mary Wathen, Partner and Head of Agriculture and Rural Affairs, Harrison Clark Rickerbys:
The Agricultural sector relies heavily on EU workers. Around 15% of the total workforce is from outside the UK. The uncertainty around the status of EU workers threatens to hit the agricultural sector hard if the status of EU workers isn’t clarified.
Despite the uncertainty, there are steps which savvy agricultural employers can take now to minimise the disruption. Taking action ahead of time will help maintain the flow of workers for each harvest, protecting both the business and the livelihoods it supports.
Employers need to ask themselves some key questions about their workforce:
- how many migrant EU permanent or seasonal workers do you have?
- how many are key staff, responsible for driving production, harvest or sales?
- how many have been in the UK long enough to acquire permanent residence?
- How many of your workforce are committed to remaining in the UK?
For smart agricultural employers, the so-called crisis provides an opportunity to build their employer brand. Employers are enhancing their working relationships with key employees who meet the requirements for permanent residency and want to remain – introducing them to specialist agricultural immigration advisers and supporting employees through the application process.
But this isn’t the solution for the seasonal workforce shortage. The fruit-farming industry employs 29,000 seasonal workers, who go back to their home countries after six to nine months in the UK. They won’t be eligible to apply for permanent residency. Virtually all of them come from the EU, mainly Romania and Bulgaria, but also Poland and Hungary. If the Government ends freedom of movement, a return to the old-style permit scheme seems the only option to protect the harvest and UK agriculture.
Richard Thomas, Employment Partner, Capital Law:
One key issue for the forthcoming Brexit negotiations will be the issue of EU Immigration following our exit from the UK. There is no doubt that the UK Government will seek to put in place some form of “controls” on EU immigration after the UK leaves the EU but it is entirely unclear as to what form these controls will take and/or who they will apply to. Will the controls apply to unskilled, semi-skilled or skilled EU migrants? Who makes the decision as to what constitutes a semi-skilled or skilled role? Is there any appeal against this decision?
It has also been suggested that the UK will allow all current EU nationals working in the UK to remain in the UK after the UK leaves the EU but it is not clear whether this will be indefinitely and whether it will apply to non-working spouses and/or children. Ultimately no promises have been given and it is a matter for negotiation between the EU and the UK, although it is hoped that the issue will be resolved quickly.
In addition, in April 2017 the UK Government introduced the Immigration Skills Charge imposing a charge of £1,000 per year for employers sponsoring a worker from outside the EU. It is quite possible that the UK Government will extend this charge to EU workers who do not have rights of permanent residence once the UK leaves the EU.
Given the current uncertainty and potential cost the best advice to SME’s with EU workers who have been working in the UK for at least 5 years is to get them to make an application for Permanent Residence as this should provide a guarantee of an individual’s continuing right to work in the UK.
However, individuals making the application will have to complete an 85-page form and provide huge amounts of supporting documentation confirming what they have been doing in the UK for the last 5 years. This is an arduous process to say the least but there appears to be little alternative as (unlike some EU countries such as Germany) the UK has no central register of the identities or even the numbers of EU citizens currently working in the UK. The Home Office has stated that it is looking to use an online application process but there does not appear to be any additional funding for this.
Katherine Dennis, Associate in the Employment, Pensions and Immigration team, Charles Russell Speechlys LLP:
The EU referendum has caused a lot of uncertainty for EU nationals and their employers as to what their position is in the UK and what will happen when the UK exits the EU. This is clearly an important issue for many SMEs, especially as sponsorship of overseas workers through the UK’s points-based system becomes increasingly expensive.
Importantly, free movement will continue to apply until the UK formally leaves the EU. This process was started on 29th March 2017 by the UK government giving notice under Article 50 of the EU treaty. There will now follow a two-year negotiation period, which could be extended by agreement of all member states. The earliest the UK would leave the EU is therefore the end of March 2019. Until then, EU nationals are still free to work in the UK.
The UK government has clearly stated that it wishes to control migration from the EU, while still attracting those whom it considers have the most to offer the UK. It is highly likely therefore that the UK will introduce measures to restrict free movement. It is also therefore likely that it will be harder for employers to recruit EU nationals and it may be difficult for EU nationals to work in the UK on a self-employed basis.
At the moment, there is no firm indication as to the type of system which might be put in place and much depends on what the UK government is able to negotiate with the EU.
Possibilities include a new work visa system for EU nationals or expansion of the current points based system, which enables employers to sponsor skilled workers in the UK (although it is currently limited to professional roles at a certain salary). It is unlikely visas will be required for short business trips. Other possibilities include retaining limited free movement with measures to cap numbers, such as quotas or temporary ‘cooling-off periods’. Concessions may be made for sectors where there is a recognised labour shortage.
The UK government has stated that it intends to consult with businesses and communities to obtain the views of various sectors of the economy and the labour market. It is therefore crucial that employers and business-owners who are concerned about the impact of Brexit on their workforce respond to the government’s consultation when it is issued.
In the meantime, EU nationals who are eligible to apply for permanent residence (i.e. those who have been resident in the UK for five years or more) or British citizenship should do so now to ensure their continued right to work in the UK. EU nationals who have not reached the five year point when the UK exits the EU are in a more vulnerable position. It is sensible for those EU nationals to apply now for an EEA Registration Certificate, which confirms that they are currently living and working lawfully in the UK under EU provisions, in case this fact becomes important in any future transitional arrangements.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!