If the choice is made to cut ties with EU27-based clients and continue to focus on the UK market, controls and education of client facing staff is key to ensure the firm has good 'know your customer' and client on-boarding procedures in place.
This is required to detect not only any new business that would bring the firm into potential non-compliance but also to monitor existing clients who move to an EU27 location.
These decisions will be about understanding the cost-benefit analysis of maintaining relationships with clients.
The cost of re-papering so soon after Mifid II and migrating investors to new legal entities – including the additional requirements of new regulatory permissions or licenses – may prove prohibitively costly.
There are the data requirements to be considered too.
Firms need to revisit elements of data protection that may have not been relevant when implementing their GDPR programme, such as the need for an intra-group data transfer agreement between their UK (which will soon be a third country) and their new EU-based entity.
Additionally, if personal data will be transferred to third parties, such as fund managers and vendors, model contract clauses may need to be inserted in contractual agreements to ensure sufficient data protection safeguards are in place to transfer personal data to and from third countries.
While no-one likes to say goodbye, it may be more effective to relinquish certain investor relationships and focus on high-value business where delegation rights can be maintained.
This removes the cost of restructuring relationships – many of which have just gone through a similar process to become Mifid-compliant. It ultimately depends on how important a client is to a firm and whether you have a strong point of differentiation to serve EU27-based clients.
This goes beyond contingency planning: it is a philosophical question driven by regulatory change about the type of business a firm wants to provide, whether European or not.
Understand your reliance on the nuts and bolts
What will likely drive a commercial decision to cut your losses is understanding the operational consequences of losing or maintaining access to the EU27’s market infrastructure.
Examine the local regulators' requirements for establishing or varying existing regulatory licenses (for example, will you now route trades and now need to add recovery time objectives to your licence?).
Some EU27 regulators are said to be receptive to holding discussions regarding new approvals ahead of any formal application being made, enabling firms to fine tune their Brexit plans at an earlier stage.
Also, it is worth considering that different jurisdictions have different requirements in terms of processing applications and with the possibility of queues starting in the most popular locations, this will lead to the potential for bottlenecks and nobody wants to be at the back of the queue.
