It is has now been over a year since the UK voted to leave the EU and there is still uncertainty around what the future will look like after the negotiations are complete. But regardless of the outcome, change is coming and it’s bringing a prolonged period of regulatory uncertainty with it.
In this blog, we will assess the potential impact of Brexit and the effect it may have on the UK financial services industry. We will look at the potential regulatory changes that are coming and the challenges banks and other organisations face when updating contract documentation.
This is the first in a series of blogs that aim to help financial services companies prepare for Brexit and demonstrate how HotDocs can be of benefit with this as the UK government navigates its way through Article 50.
Impact on London as a financial centre
The biggest threat Brexit has over Britain's economy comes from efforts to weaken London's authority in financial services. The UK has dominated wholesale financial services in the EU for many years. Much of the financial activities carried out in Europe are either directly or indirectly performed out of London. For example, 87% of US investment banks’ EU staff are employed in London. However, continental leaders, politicians and regulators are citing Brexit as an end to London's right to trade financial products across the EU and talk about moving thousands of jobs to the continent.
Historically, the UK has been Europe’s international financial hub and leads the way in a range of financial services, including:
• Cross-border bank lending, where the UK holds a 17% international market share, compared to 9% for France and 9% for Germany
• The UK’s hedge fund assets amount to an 18% market share compared to 1% in France
• Britain’s trade surplus in financial services was £63bn in 2015, which was more than the US, Switzerland and Luxembourg surpluses combined
• The UK has the leading share of trading in many international financial markets such as cross, international insurance premium income (29%) and foreign exchange trading (37%)
So, will leaving the single market damage London’s position as financial centre? Most likely, however, London’s reputation won’t disappear; it may just lose some importance.
No longer part of the EU while still having to abide by its rules
With the UK out of Europe, there is discussion around whether it is understood that the UK would no longer need to contribute to the EU budget. However, the UK would still need to comply with EU regulations on product standards if it wants to do business with EU entities, while having no influence over these regulations.
This is likely to be the case in a number of areas. The UK may be free of some of the financial burdens that come with being a part of the EU, but banks will still have to adhere to ever-changing compliance legislation.
Our banking customers often tell us that the perpetual compliance change that comes out of the EU is one of the main driving factors to automating their document production processes with HotDocs. Unfortunately, it looks like this isn’t going to change any time soon, or in fact, could things get worse than ever? Banks may now need to comply to changes that they have no way of influencing.
40 years of EU regulations
Following Brexit, the UK will be required to replicate or renegotiate more than 40 years of EU regulations, trade deals and Financial Trade Agreements (FTAs). The House of Commons library recently announced that ministers could import up to 19,000 EU rules and regulations into the British statute book. Furthermore, research conducted by the CBI employers’ organisation has estimated that Britain may need to set up domestic versions of as many as 34 EU regulatory agencies, covering areas such as agriculture, energy, transport and communications.
It is likely that many financial services organisations will have to completely overhaul all of their existing documentation to comply with the upcoming changes, compounding the need for automated document production services like HotDocs.
Anti-Money-Laundering (AML) and Know Your Customer (KYC)
According to law firm Ashurt, “as part of ongoing global efforts to eradicate money laundering, the Financial Action Task Force (FATF) has established an international anti-money laundering (AML) framework, applicable to all FATF members and observers. This includes most member states, meaning that they are all bound by the FATF’s rules regardless of their EU membership status. As a result, when the UK leaves the EU, it would nevertheless remain a member of the FATF and would still need to abide by its requirements.”
In a post-Brexit environment, the UK will be required to continue abiding by the regulations set out by the FATF with regard to their respective AML requirements.
This mean that although the UK will be out of the EU, Customer Due Diligence (CDD) and KYC will continue to affect the time it takes banks to onboard customers.
HotDocs removes the pain that comes with KYC document legislation, as our system is designed to make the customer onboarding process as easy as possible, while producing fully compliant documents faster than ever before.
Going forward with HotDocs
Whether you welcome Brexit or not, HotDocs can help you prepare for it by providing the flexibility to react to regulation changes as they happen.
HotDocs allows this by giving financial services businesses the power to transform documents into dynamic, reusable HotDocs templates, allowing businesses to make historically complex and time-consuming changes in seconds.
With HotDocs you can apply mass clause changes, make compliance updates or add new conditions to your HotDocs templates, and update ALL your document templates instantly.
This blog includes just some examples of how the regulatory landscape may change as a result of Brexit. However, with HotDocs, banks and other financial services businesses can be prepared.