Over the past few weeks, we’ve seen the polls fluctuating wildly and the odds of leaving grew determinedly, sending the pound into shock, plummeting to lows not seen since 2009. Despite all this, there was an assured belief on the part of the Remain campaign that the polls were misrepresentative and that, at the end of the day, the uncertainty of a post-Brexit UK, with all its variables, would be enough to inspire the undecided voters to choose the safety of remaining within the European Union. But the result today represents a loud declaration on behalf of the people of the UK that they do not see a future in the EU.
For many, the upcoming weeks will be occupied with confusion as we get to grips with the prospect of exiting and all the indeterminable aspects of the withdrawal process which will slowly be revealed.
Where do financial services firms stand now? The threat of Brexit represented a major exercise in project management and speculative forecasting. Firms should have realised the risks that a potential Brexit posed to their business model and a few firms will have prepared for both an In or Out decision. For the unprepared, the next few months will see a bumpy transition.
As a starting point, in May of this year, we at JWG, published a 26-page research paper, entitled “Brexit: changing out the engine of finance”, within which we discussed the operational and procedural implications of Brexit on the financial services industry.
Within this report, we listed a ten-point action plan that every firm should implement in order to successfully manage the ‘mother of all change programmes’. Now, with the final tally of the votes revealed and the official declaration that we will be leaving the EU, firms must acquaint themselves with a robust strategy for mitigating any of the possible negative side-effects on the unknown journey of withdrawal.
- Organisational gap management. The process of mapping future rules to the current operating model and identifying the gaps will be a complex task that must be started early. Winning firms will know the impact on their systems and controls and respond early to minimise disruption. Perhaps, even more importantly, they will recognise and deal with the issues their people face in managing the psychological aspect of the change programme
- Regulatory change management capability check-up. The board should ask senior managers to flex their change management muscles and see if they are strong enough to withstand even the worst-case scenario. A comprehensive set of processes and systems is required to track, interpret and develop an implementation strategy. Existing regulatory management processes are unlikely to suffice and ‘change the bank’ functions are already swamped with the current workload which cannot be abandoned
- Brexit risk tracker review. Senior management should be creating a comprehensive impact assessment to account for the many types of risk: market, counterparty, liquidity, operational, vendor and legal. As the Brexit landscape materialises, teams will need to be realigned, governance altered, distributors added, customers cut off and suppliers changed
- Regulatory change portfolio management. The way change programmes are run across business and functional silos will need to be reviewed and gaps filled quickly. Without the right people in these roles, the level of Brexit risk will increase substantially and the firm will struggle to move quickly enough to clear the information being received and meet the tight timeframes
- Rule interpretation factory. Establishing a system for interpreting the obligations will be essential, as new rights and responsibilities – which were previously guaranteed under the EU’s regulatory regime – come in to play. Minimising uncertainty will be essential to avoid disruption to a steady flow of business operations. Ideally, a single version of the ‘new truth’ will be made visible to the entire organisation
- Collaborative working groups. As the entire market faces the same obstacles, a collective response could allow firms to develop a clear and unified voice in dealing with Brexit issues. Each firm should assess how they will work on both competitive (e.g., lobbying) and non-competitive changes. Trade associations and working groups need to get off the mark quickly with the right representation
- RegTech strategy. Developing a comprehensive strategy for RegTech will be essential in managing the rewiring effort. Having a central managing framework will be crucial in dealing with regulatory overload without becoming overwhelmed by the revised policies
- International standards management. Reconciling international standards, along with equivalence requirements, will necessitate continuous efforts by businesses. The UK faces the prospect of no longer having a seat at the table with a collective of 27 other Member States. They will need to manage an effective strategy for capturing these requirements from across the world and understanding the implementation approach that should be adopted
- Professional services lock-in. Obtaining high-quality advice is essential. Therefore, getting commitment from the top legal, physiological and change management professionals early will be key. Joining the right groups (identified in step 6) will be vital
- P&L revision. Firms should prepare to spend more. Costs will increase across all departments, so budgets and forecasts will need to be amended to account for a worst-case scenario. What-if scenarios should be run to assess for 5%, 10% and 20% increases in the cost base for the next three years. The implications of such increases may require firms to re-evaluate their future strategic plans.
This 10-point plan represents a starting point for many firms which may be feeling a bit lost right now, however, it will only be as time moves on that all the unknown variables of the exit process are slowly revealed.
Ultimately, we must conclude that this momentous decision makes regulatory change management more complex and more difficult. In the wake of Brexit, the industry needs to review how it manages regulatory change and the need for a regulatory change management platform has never been greater.
We at JWG, will continue to track the next steps in the withdrawal process and you can keep up to date with our industry analysis by subscribing here.