Brexit five things to consider if your business trades in services

For more detailed guidance on Brexit planning, members can refer to our recently updated Business Planning for Brexit guide which covers sections including Goods, Services, People and Trade with the Rest of the World.

Data flows

The EU generally has strict conditions for allowing the personal data of EU/EEA nationals to be transferred to other countries. The continued free flow of personal data between the EU and UK under no-deal largely depends on whether Brussels assesses the UK’s personal data protection regime as equivalent to its own (i.e. through an ‘adequacy’ decision). As this cannot be relied upon in the short term, businesses importing personal data from the EU (such as payroll information or contact information for marketing operations) should look at alternative means such as Standard Contractual Clauses or Binding Corporate Rules. Establishing data centres in the EU may also help facilitate continued data transfers into the UK. As for outbound data transfers, the Government has said the current unprecedented degree of alignment means the UK will continue to allow the free flow of data to the EU regardless of no-deal.

People

The Government has introduced the Settled Status scheme for EU citizens seeking permanent residency in Britain after Brexit. EU nationals that have been living here continuously can apply for settled or temporary permission to stay, depending on whether they meet or have yet to meet a five-year threshold. The Government has announced it is introducing a European Temporary Leave to Remain category for EU/EEA (and Swiss) nationals arriving after EU exit day and wishing to stay and work in the UK for longer than three months under no-deal. Those arriving after exit day but intending to stay less than 3 months can continue to come into the UK as they currently do. Home Office guidance says that, until 31 December 2020 under no-deal, EU/Swiss/EEA nationals can still use either a valid passport or ID card. The arrangements for UK nationals in the EU are managed by individual member states. Company directors should consider short to medium-term staffing requirements.

Financial services

In a no-deal Brexit scenario, passporting in its current form will come to an end. This means UK financial services firms will no longer be able to sell their services to EEA markets the way they do currently and vice versa. Businesses may look to obtain a license in EEA member states – although the time it takes to set this up and the requirements enforced by the country can vary. The Bank of England and the Financial Conduct Authority have stated they will allow firms passporting into the UK to continue doing so under the same authorisations until at least the end of 2020. Licensing requirements for UK-based financial services providers to continue operating in or accessing clients in the EU will largely depend on individual countries, although European regulators such as ESMA and EIOPA have recently published some continuity/contingency plans. The Irish government for example has recently published their draft no-deal legislation in this space.

Contracts for other service providers

Contracts which involve operations or activities in other parts of the EU/EEA should be carefully examined. This is especially true in a no-deal scenario and regarding contracts which rely on the freedom of movement and/or freedom of establishment in the Single Market. You may find it appropriate to insert a “force majeure” or “material adverse change” to allow for renegotiation of terms – or termination of contracts in extreme cases, although firms are advised to explore the enforceability of such provisions to be certain. Another step to consider taking would be clarifying the term “territory” in references to licensing or distribution where there is explicit mention of the EU/EEA.

Public procurement

Both the UK and EU have committed to seeing the level playing field in public procurement continue in future, but a no-deal Brexit would mean some changes in the immediate term. Notably, contracting authorities would need to send notices to a new UK-specific e-notification service, which would be the replacement for the EU’s Publications Office and Tenders Electronic Daily. Aside from this, another factor for directors to consider is future restrictions on the freedom movement of persons, as this may have an impact on firms’ ability to win or carry out public sector contracts in other EU/EEA countries.

For all the latest on the IoD’s Brexit work, please visit our Navigating Brexit hub for our latest press releases, reports, events and more!