Brexit negotiations and the political manoeuvring around them are constantly shifting, so markets and businesses continually have to reassess how likely outcomes might impact on them. The result: uncertainty around how to plan. At the ACT’s briefing on 1 March, ‘Brexit: the final countdown’, hosted by political risk specialist Cicero, executive chairman Iain Anderson and executive director John Rowland gave an overview on the political landscape around Brexit negotiations. A panel discussion then explored the practicalities around the reconfigured relationships between corporates and banks that will undoubtedly be the main consequence for treasurers. Just after the briefing, Theresa May’s Mansion House speech on 2 March gave markets and businesses some clarity on the prime minister’s proposals, as she walked a tightrope between unifying her own party and mollifying EU negotiators. While she called for a “deep and special partnership” and signalled a willingness to adhere to EU standards in certain areas, and accept Brussels competition rules and European court rulings, the EU responded by rejecting her stance. Under May’s approach, companies would fall into one of three categories, depending on their industry sector, with:
“What [the prime minister’s speech] firmly ruled out is passporting,” said Anderson. “Banks are rewiring at the moment and some are starting to say that certain products and services may not be economical to offer.” Donald Tusk, president of the European Council, meanwhile, responded with draft guidelines for negotiations that rejected Britain’s outlined plans for its future relationship with the EU and stated that the future for the EU and the UK lay in a free trade agreement.
With the rapidly moving political agenda firmly in mind, the panel discussed banking relationships, passporting and corporate readiness for Brexit. And with a lack of certainty on any transitional period, a key message from the panel was: you’re not preparing unless you’re preparing for a harder landing. Speaking as chair of the Brexit working group for the Association for Financial Markets in Europe (AFME), Nick Burge, MD and head of global corporates regulatory and structural solutions, Lloyds Bank, said a hard Brexit could lead to fragmentation of markets and liquidity and that an update to AFME’s Bridging to Brexit study published last year will further probe the capacity impact of that at an aggregate level. “Banks are putting in place plans to cope with a hard Brexit,” he said, adding, “There is also a need [for corporates] to look at contract continuity; and where you are going to access your liquidity from.” The continued availability of banking products and services to corporates once Brexit occurs was much discussed, as was the potential for increased costs. Andrew Gray, partner and head of Brexit for financial services at PwC, pointed out that, while various pieces of regulation might be brought to bear to enable banks and corporates to continue to transact across the EU, businesses really needed to look at continuity of supply in this regard. “Corporates need to understand who provides their banking services and on what basis. The huge complexity within this is that everyone is moving in a relatively uncoordinated way, with little certainty around transitional arrangements. The European Central Bank has said it is not going to step in around migration of clients and that it considers that a private contractual matter,” he said. Banks that are more advanced with their Brexit preparations are already in conversation with customers on this area, he confirmed, but corporates needed to look in detail at where their banks are based and how well placed and willing they are to continue their relationship. “Find out what your dependence on them is in different locations,” he said. Michelle Price, the ACT’s associate policy and technical director, underscored the point: “Make sure you are at the front of the queue with your banks,” she said. The question of whether banks might be able to continue to provide products and services in different locations going forward is not solely Brexit-related, but relevant to all businesses looking at new markets, said Lionel Taylor, managing director of the Trade Advisory Network. “This is an evaluation that is going on all the time,” he said. “We’re seeing a lot more interest in securing supply chains across the globe and other markets coming into play.”
There is still a fairly high chance that the UK will walk away from talks, Anderson said, precipitating the hardest of exits. “Theresa May has managed to bind together most of the Tory party. But if the EU says no, we may be looking at a harder landing,” he said. Find the ACT’s Brexit resources for treasurers here.