Many CEOs, general counsel and other members of the C-suite have found addressing Brexit difficult. The consequences of Brexit for businesses inside and outside of the UK are not yet clear, and the number of issues that we may see as a result of the UK leaving the European Union seems overwhelming. This is why businesses may show little enthusiasm for taking action.
However, the lack of planning and engagement may cause considerable disruption to your business. Whether the risks are due to market uncertainty, business disruption, legal noncompliance or political developments like Brexit, today’s corporations must identify, quantify and mitigate their risks.
We outline the issue and recommended a strategy for three sectors.
Sector 1: Chemicals
The issue: Registration, Evaluation and Authorisation of Chemicals (REACH), UK chemicals regulation
The context: Companies that manufacture and/or market chemical substances in the EU must do so under an appropriate REACH registration for each substance. Registrations can only be held by an EU entity, generally either as an EU manufacturer or, for manufacturers located outside the EU, as an EU importer. Registrations held by UK entities would cease to be valid for activities in EU27 following a hard Brexit. Alternative arrangements would have to be found, e.g., by appointing an EU-based entity to hold the registration in place of the current UK registration holder.
The UK has no specific domestic laws regulating the manufacture and sale of chemical substances. The REACH regulation, based on a central EU chemicals regulator, is directly applicable and difficult to transpose into UK law. The UK will therefore need to replace REACH and create a domestic UK chemicals agency (if that is what they decide to do). It is unclear whether current REACH registrations, whether held by UK or non-UK entities, will be valid post Brexit or whether the UK and EU27 will reach any agreement on the future of chemicals regulation, e.g., by way of a mutual recognition.
Recommended action: Review the validity of your current REACH registrations for business in Europe post Brexit. Examine the nature and extent of the regulation of chemicals substances in the UK post- Brexit.
Sector 2: Consumer products and retail
The issue: Commercial contracts in the retail sector may be vulnerable from a commercial and a legal perspective due to Brexit. Current distribution networks may not be effective any longer post Brexit.
The context: European commercial and contract laws may no longer be applicable to UK companies if the UK starts to amend such laws post Brexit.
Some contracts may refer to EU regulations and such references may become ineffective vis-à-vis the UK post Brexit.
Adequate anticipation may lead to the need to renew or renegotiate existing contracts and provide adjustment provisions and mechanisms (dealing with hardship, change in applicable regulations, change in applicable case law) as well as dual-track terms and conditions applicable either to the UK domestic market or to cross-border sales.
Certain European regulations applicable to interstate commerce, such as block exemption, competition, online sales, advertising and consumer protection, will no longer be applicable to UK companies post Brexit; others may be incorporated into UK law as of Brexit or may begin to be changed in the period afterward.
Adequate anticipation may lead to the need to structure differently your omnichannel distribution strategy when targeting domestic UK market or the EU27 markets.
Recommended action: Review your commercial contracts strategy with regard to retail regulation and examine your omnichannel distribution strategy.
Sector 3: Life sciences
The issue: Regulatory structuring and organization
The context: EU law requires that marketing authorization (MA) holders be established in the European Economic Area (EEA), and that some activities be performed in the EEA, e.g., pharmacovigilance (PV). Manufacturers of medical devices (MD) established outside the EEA must appoint a legal representative. The European Medicines Agency (EMA) has already noted that EU MAs owned by UK companies will need to be transferred from the UK to an EEA-based company. In addition, some pharmaceutical operations and systems will have to be relocated so that they are performed in the EEA: Qualified Person for PV (QPPV), PV System Master File (PSMF) and site of batch release/certification. Manufacturers of MD based in the UK will have to appoint a legal representative based in the EU.
When the UK exits the EU, it is likely that the physical movements of medicinal products from the UK to the EEA (and vice versa) will be deemed as imports. Buy and sell operations between the UK and the EU might also be deemed as imports (depending, in particular, on discussions on legal flows or “virtual imports”).
For MedTech companies, EU operators purchasing products from UK-based companies will become importers, meaning that they will need to implement specific processes as required by the new medical device regulations. Manufacturers may need to change their notified bodies, should the latter not be based in the EU.
Recommended action: Prepare for Brexit‘s impacts on regulatory key issues and distribution flows.