There are many more unknowns than knowns after the referendum on Brexit. We expect the short-term focus for firms to be on managing the financial impacts and communicating with a broad range of stakeholders.

By Sven Probst, Financial Services and Banking Industry Leader, and Dr Daniel Kobler, Leader Centre of Excellence for Private Banking/Wealth Management, Deloitte Consulting AG

While EU law will continue to apply up to the point when (or if) the U.K. leaves the EU, this is the calm amid what is otherwise a very turbulent short-term outlook.

Below are six steps that we believe are critical for firms to consider, especially but not exclusively for banks operating in the U.K. or having other business relationships with the U.K.

  1. Be ready to respond at very short notice to information requests from supervisors, both in the U.K. and elsewhere, about the impact of market volatility on balance sheets and customers/counterparties.
  2. Broaden and deepen scenario analysis and contingency planning.
  3. Develop well founded and consistent communications to internal and external stakeholders.
  4. Consider how future strategies might be affected, positively or negatively, by the terms of the U.K.’s exit from the EU.
  5. Begin to work through detailed plans and timelines for any relocation strategies that may need to be invoked.
  6. Consider the appetite for buying «insurance» against possible outcomes that could seriously undermine a firm’s business model.

Impact on Swiss Financial Services Firms

Considerations of potential changes are relevant especially but not exclusively for financial services firms with business relationships with the U.K. Market volatility and rising uncertainty are likely to challenge all in the short to medium-term.

In Switzerland, Brexit’s biggest impact is likely to be felt in the foreign exchange markets, since upward pressure on the franc has increased. Therefore, while the situation itself is completely new – no member state has ever left the EU – one of the primary channels through which this event makes itself felt in Switzerland – the exchange rate – is not new.

To Limit the Franc's Appreciation

Swiss financial services firms have been forced to deal with the stronger Swiss Franc for years, so this is a challenge they know very well. The Swiss National Bank is prepared to respond to limit the Franc’s appreciation.

Likewise, increased financial market volatility and uncertainty, another impact channel, is unwelcome, but not unprecedented. The financial crisis, the euro crises, geopolitical tensions, financial services firms have been operating in a volatile environment for years.

No EU Passporting

The attractiveness of doing business from Switzerland could rise relative to the U.K. Political and regulatory uncertainty will be elevated in the U.K. until a new final settlement with the EU can be found. Should the U.K. lose Single Market access and EU passporting rights, the U.K. would then access the single market on a third country basis, much the same as Switzerland.

Switzerland, however, is not likely to benefit to a large degree from any relocations out of London. Since it cannot offer EU passporting, financial services firms looking for a new EU market hub will consider other EU financial centres first, such as Paris, Frankfurt or Dublin.

Dealing With an Uncertain Outlook

For some financial services firms, particularly those that use the U.K. as a hub to passport or provide services on a cross-border basis into other EU Member States, the terms of access which the U.K. negotiates to the Single Market will be fundamental to their future strategy and business models.

For many of these firms, «waiting and seeing» until the outlook becomes clear will be untenable, given the lengthy lead times associated with moving substantial blocks of business and potentially people.

Meticulous Planning Required

These firms face a period of decision-making under significant uncertainty. To operate successfully in this environment will require meticulous planning, including scenario analysis and contingency planning, the identification of triggers to activate elements of those plans, and, in some cases, taking early decisions to secure maximum flexibility and optionality for the future.