How Brexit will impact financial services mobility and relocation

The UK is about to begin an unprecedented period of change, creating unique challenges and opportunities. The consequences of Brexit will require planning and communication from companies who wish to prepare for Brexit by relocating their businesses into any EU27 location.

In this context, businesses need to prepare and execute a relocation strategy that considers the preferred location for the move, the anticipated costs, the retention and relocation of talent and minimal business disruption.

Companies should consider the following:

Cost and benefit analysis of relocation

The likely costs and benefits of relocation will vary from location to location. A comprehensive analysis of the differences in terms of tax, social security, immigration and pensions regimes between the 27 EU states is advisable as part of any relocation strategy for financial services businesses.

Social benefits

EU rules on social benefits are likely to no longer apply to the UK from March 2019 and would be replaced by existing bilateral social security agreements that the UK concluded with some of the remaining EU27 countries in the past. In such cases, the existing agreements would have to be renegotiated in order to adapt them to the current working conditions and to guarantee social protection of the individuals in case of relocation.

Where there are no bilateral social security agreements we would expect the UK to conclude agreements with those EU countries in order to ensure social protection and cover the different work structures as well as for periods of secondment.

Managing immigration and mobility liability cost

For non-EU citizens living and working in the UK, little will change from an immigration and mobility perspective, as they currently need visas and permits to work in the UK or in the rest of the EU.

However, for EU and UK citizens, who do not need a residence visa and work permit today to live and work in the UK and in Europe, the scenario might change. Without any special arrangement between the UK and the EU, Brexit is likely to increase immigration and compliance costs for employers and commuters. In addition to the UK aspect of such costs, an assessment will need to be made of immigration and compliance costs in destination jurisdictions.

Change management

All businesses need to minimize the cost of disruption when making key strategic changes. Change management involves developing a strategy that considers all stakeholders and develops an effective communication strategy before announcing any relocation.

Key change management issues are as follows:

The employment law issues to be considered by any financial services company looking to relocate some or all of its business to an EU27 state are considerable.

With respect to staff transfers, the position is complicated as any financial services business is likely to have a mixture of UK and EU27 nationals that it wishes to relocate. How can a company arrange the following issues with as little disruption as possible?

UK nationals relocating to EU27 states

Do existing contracts of employment have relocation clauses allowing such a move to be carried out? Will current contracts of employment governed by English law have to be replaced by an arrangement subject to the law of the destination state? Can secondment arrangements be used? Will the post-Brexit arrangements allow temporary work to be carried out by UK nationals in the company’s UK office?

EU27 nationals relocating to EU27 states

In addition to many of the same questions above, the issue of temporary work in the company’s UK offices may be more complicated than with respect to a UK national.

Remaining employees

Where the part of a business which is being relocated has employees who are no longer required, what arrangements will need to be made? Can they be transferred to other parts of the business? Will redundancies be required? What are the company’s outplacing obligations? Where staff are required to relocate but refuse to do so, what are the company’s legal obligations under English employment law?

Pensions and social security

What are the rules governing the transfers of pension rights and social security contributions from the UK to an EU27 State for current staff who will be relocated?

New locations

In respect of selecting a destination state, careful thought has to be given to the new location of the business and its employment law regime. Does the new location provide flexibility in its employment law arrangements to accommodate staff arriving from the UK for fixed or indefinite periods? Will trade union and worker’s representation structures have to be put in place? Will relocating staff have to switch to local law governed employment contracts? How do you manage the switch from English law governed contracts? How do the compensation rules in place affect the company’s current compensation and bonus policies?

Immigration issues

Last but not least, what steps can be taken to safeguard the immigration status of UK nationals relocating to an EU27 state post-Brexit? Are long term, permanent residency or other types of arrangements available and what are the rules that govern those arrangements?

Most financial services organizations are preparing contingency plans based upon a hard Brexit scenario, where financial service passporting rights are lost. As such the starting point is to determine which services and products will be prohibited without an EU passport.

Given uncertainties around the regulation of cross border services and the general political dynamic, this is a difficult question. We are finding that, depending upon the organization and service provided, the optimum solutions are likely to vary. There also remains a great deal of legal uncertainty over how some of the cross-border concepts considered below will operate in practice in a post-Brexit world.

This section explains some of the different ways in which cross-Channel business may continue and what regulatory considerations financial services businesses face when determining how many and which staff are to be moved (or how many new positions should be created in the new entity).

Following Brexit, financial services firms in the UK will become “third country firms,” which means they will not be firms with an automatic right to access markets in Member States across the EEA under the passporting regimes of the various European Union single market Directives. As such, if firms wish to continue to provide their services across the EEA post-Brexit, they will need to consider the methods which will allow them to do so. In the absence of any explicit prohibition or permission on undertaking an activity, it is left to the national regimes of each Member State as to the extent to which they permit third country business in their jurisdiction.

For some businesses, the amount of activity they carry on in some EEA jurisdictions may be relatively small, and be capable of being serviced by a single individual working part- or fulltime. The starting point for most organizations without an existing authorized EU entity will be to establish a new authorized entity in an EU state that can secure the passport and service EU clients. This however is likely to involve considerable disruption and a need to move or hire a significant number of employees.

In some cases however, organizations are considering other ways in which staff can remain in London and continue to be able to conduct activities in the EEA without breaching the regulatory perimeter.

A number of potential approaches are being explored: