A weakened government
The UK electorate voted to exit the EU on 23rd of June 2016. It seems that there was little if any planning done by the UK Government for such a result. The Prime Minister David Cameron resigned followed by subsequent appointment of Theresa May and the triggering of Article 50. A snap election failed to provide the overwhelming majority May hoped for and a weakened Conservative government with a precarious parliamentary arithmetic is battling at home to ensure support and is in a difficult negotiating position with the EU. Even now there is little clarity as to what Brexit will really look like. However, May has been quite clear in stating that the will of the people will be carried out and there will be a Brexit.
We are well into the negotiating phase and time is ticking on a very tight negotiating timetable. The UK economy continues to perform well in the short term however there is a perceptible softening.
Law firms exposed to different sectors will see clients impacted in different ways. The Brexit vote result did see an immediate devaluation of Sterling by circa 15%. This has had significant implications for Irish exporters to the UK in particular Agri food.
UK buyers will review and restructure supply chains with the weakening of sterling against the euro and dollar and the volatility in exchange rates now evident. The biggest threat is a loss of confidence in Ireland as a competitive supply base resulting in loss of markets and exports.
The financial services sector is anticipated to be the sector most affected by Brexit and where real opportunities exist. Potential changes regarding passporting rights, regulation and capital requirements and access to EU markets and capital is a major concern. Multinationals who view access to the EU market place as critical are already considering other European cities like Dublin as alternatives and in some cases are proceeding to open or expand Irish operations in Dublin or other EU locations as a protective measure.
Record numbers and competitive threats
A record number of solicitors from Britain and Northern Ireland applied for registration and have been admitted to practice in Ireland 2016/17. This reverses a trend where during our recent recession many hundreds of Irish solicitors went to work in London and registered with the UK Law Society.
Ireland has the most similar legal jurisdiction to the UK of all the EU states and is the only English speaking common law jurisdiction also with similar legal institutions. We have also seen a number of UK firms reviewing their options about opening an office in Dublin and whether to merge with an existing Irish firm. Pinsents have already commented publicly on this.
The key points for professional practices to consider are:
- With the exception of currency movements and their specific impact on your business it will be business as usual for the immediate future. So there is time to plan.
- Whilst it is expected that there will be at least a two year transition window for new trading agreements and possibly longer there is an immediate need for law firms to carry out a Brexit impact assessment and review.
- The cliff edge is still a possibility – have a contingency plan
- Assess your client base and its vulnerabilities. For example the introduction of tariffs and border controls would lead to an increase in the cost of and administrative burden of doing business with UK businesses should this happen.
- Your clients should have a plan ready which identifies the risks, the actions required and timelines under various scenarios of post Brexit agreement between the UK and the EU. They will need your advice and therefore there are opportunities.
- Establish if there are opportunities to establish stronger linkages with UK law firms wishing to establish a presence in the EU post Brexit or consider a merger/acquisition?
- Assess your internal resources and team. Take professional advice where required to assess your financial plans, merger opportunities or team challenges.
I think Nicola Sturgeon the first Minister of Scotland summed up the opportunities Brexit could deliver best when she stated, “We are in unchartered territory, and when you are in unchartered territory with effectively a blank sheet of paper in front of you then you have an opportunity to try to think things that might previously have been unthinkable and shape the future”.