Editor’s Note: The author of this post is a London-based legal consultant.
By Richard Tromans, Founder, TromansConsulting
Despite the markets nose-diving the reality is that the U.K. probably won’t leave the E.U. until at least October 2018. This is because departure negotiations are set to last two years (based on Article 50 of the Lisbon Treaty once the E.U. is notified of a country leaving, the departing nation has two years to arrange its exit) and those talks cannot begin until we have a new Prime Minister, which is expected later this year.
So, first takeaway is: don’t panic, there are over two years before the U.K. actually leaves the E.U. and its regulatory and legal umbrella, in which case lawyers and clients have a very long time to plan for what they need to do.
As many have noted, there will be a lot of advisory work for clients wanting to know what a Brexit means for their business. From banks to builders, everyone will be impacted in some way, whether they are a company with a U.K. domestic focus or have an international focus.
The problem is this: No one knows for certain what new rules and laws will be decided upon, or if the current laws in the U.K. governing everything from employment rights to trading regulations will stay as they are.
For example, there could be legislation in place in the U.K. that was derived from an E.U. Directive, such as on working hours, but lawmakers here decide it’s a good law and should stay untouched. Or the opposite may happen and every company operating in the U.K. will have to rewrite its HR code now that the E.U. Directive carries no weight in this country and lawmakers have decided to alter the detail of the regulations.
The same applies for a myriad of laws that could alter how businesses operate here. No one knows the detail yet as no-one has started the Brexit talks yet, plus what changes to domestic law there may be in the future have not been outlined. That is made more complex by the fact we are waiting for a new Prime Minister to lead the U.K. out of Europe and they won’t take over until October.
And that is without even getting onto the subject of the U.K. agreeing to new trade deals with the rest of the world, including the E.U., along with tariffs for hundreds of different products. Rather than negotiating as part of the 500-million strong E.U. we will be starting talks around the world on trade in products and services as a solitary nation. Few believe this aspect of Brexit will be easy. Though some law firms may well gain some prestigious work advising on these matters.
Fundamentally, this has been a ‘shoot first, ask questions later’ referendum. We are basically in the dark for some months to come, law firms and clients alike about what the future looks like.
Many people are also considering if law firms in the U.K. will be negatively impacted. It seems sensible to conclude that some deal activity will be delayed until investors and business owners know more about how any changes in the law or change in trade relationships with the EU, or other nations, that may impact their deals.
Hence, work could ‘pause’ for a while until the picture clears. That could hurt some firms that are very heavily leveraged for transactional work. But, it’s too soon to say yet just how much work will be placed on ‘pause’.
For law firms that are well-hedged internationally, Brexit may not have quite as much impact. Those firms that generate a lot of revenue outside of the UK may be able to ride out any brief slowdown in U.K. work by tapping activity in Asia and the Americas, as well as in the rest of the E.U. itself.
That said, no firm wants to see any part of its network experience a slow down, so, managing partners will be watching U.K. deal levels very closely and trying to figure out how best to respond.
Moreover, U.K. and U.S. firms will no doubt be watching as to whether their corporate, banking and private equity fund clients decide to move more of their presence to major European legal and finance centers such as Paris and Frankfurt in order to have significant operations based inside the E.U. when the U.K. finally leaves in late 2018.
That in turn could potentially see some U.S., and English, law firms expanding their operations on the Continent. Though, many large U.K. firms already have significant bases across Europe and are perhaps well placed to respond to any movement of clients from London to the continent, as are some of the more ‘global’ U.S. law firms.
Much depends on how the big corporations and financial institutions in London respond to being outside of the E.U. Again, what impact that has will depend on negotiations that have not yet taken place and debates about changes to domestic law that are wholly unpredictable at present.
Ultimately the unknowns are the biggest issue here. Lawyers and general counsel don’t like mysteries that much, at least not when trying to give business critical legal advice.
Saying: ‘I don’t know and cannot know for several months,’ is not an answer many CEOs of global companies want to hear from their legal advisers either. But, that may be the only honest answer. Some companies are just going to have to get used to a degree of uncertainty as they continue to trade in the U.K.
Eventually the picture will become clear and negotiations will reach a conclusion. Delayed deals will go back onto the front burner and volatility will fade away. But, whatever happens next, it is going to be quite a ride, for the U.K. and the law firms that operate here.