Understand Your Rights. Solve Your Legal Problems
At the heart of the Queen’s speech today were an array of proposed bills that prepare the UK for a smooth exit from the European Union. Of 27 bills, eight pertain directly to Brexit and its implications for key sectors.
There are bills to convert EU laws to UK laws and some measures on immigration, fisheries, trade, nuclear power, agriculture and sanctions.
Below Lawyer Monthly has heard several comments from some of the UK’s leading law firms.
Robert Rutherford, CEO of IT consultancy QuoStar, comments on the planned Data Protection Bill:
We welcome the increased – and essential – focus that the Government is placing on data protection and urge businesses to act now. Companies operating in the UK are already preparing to comply with the upcoming General Data Protection Regulation next year, and must now consider what additional compliance is required for this new bill.
Investment in both technology and resource will be crucial here, and preparation must not be left until the last minute. Firms must take steps now to understand the customer data held on their systems, and ensure that they have legal grounds to keep and share this information with third parties.
Tom Jones, Head of Policy at Thompsons Solicitors, comments on the planned Civil Liability Bill:
This is a desperate government looking for headlines. This will actually take money from the NHS and the Treasury and give it to hugely profitable insurers with no guarantee at all of any return to the consumer.
There is simply no evidence of a ‘compensation culture’: every government report has said it's a perception, not a reality. The insurers have whipped up a ‘crisis’ whilst neglecting to mention that they have actually saved over £8bn since 2010.
In the last parliament consumers were going to get a £50 reduction in premiums, yet now we are told the figure will be closer to £35. Another bill, another made up figure. The only guarantee here is that hundreds of thousands of working people are going to have their rights diminished and their access to free legal representation taken away.
Charles Brasted, Partner at Hogan Lovells, comments on several of the planned bills:
The Government's intended approach in the no-longer-Great Repeal Bill is confirmed in the Queen's Speech – providing for continuity based on existing EU law by default as far as possible, and likely doing so en bloc rather than item by item.
The Repeal Bill will provide the domestic legal framework for Brexit and do much of the heavy lifting. However, the Queen's Speech also promises (in accordance with the March White Paper) specific legislation on a number of issues arising from Brexit. These include immigration, nuclear energy (outside Euratom), privacy, agriculture and fisheries. This is far from a comprehensive list of the areas in which new national policy is likely to be needed in the next two years. That list will be a moving target as the negotiations develop.
The details we have of those issue-specific bills so far suggest that even these Bills are likely to be in large part enabling rather than prescriptive. This approach leaves options open to reflect to the sort of Brexit that emerges as negotiations go on.
The Customs and Trade Bills emphasise the centrality to the Government's Brexit plans of leaving the EU Customs Union and Common Commercial Policy – but do not preclude a EU/UK agreement in these areas.
It is noteworthy that the Government's plans for the Immigration Bill are described as "allowing for" the repeal of EU law on immigration, including free movement, that would otherwise be incorporated into UK law by the Repeal Bill. This perhaps deliberately raises the prospect that any such changes will come some time after Brexit.
These enabling or framework Bills may well confer powers on Ministers to develop the detail as secondary legislation. Parliament is likely to be more vociferous than ever in demanding scrutiny of substantial policy changes, a demand that will no doubt rub up against the increasing urgency of legislation as Brexit approaches.
Labour is in a tough position when it comes to Brexit. In its heartlands in the north, the party's traditional supporters voted to leave the European Union but in its urban strongholds they voted heavily to remain. Keir Starmer, the shadow Brexit secretary, is in the unenviable position of balancing those two opposing demands. I went to his constituency of Camden in north London to find out about the party's Brexit negotiation plans and ask why Theresa May seems hellbent on giving the impression she'll leave the European Union with no deal.
More and more companies are pushing into new territories, counting on their ability to buy in talent and new business to expand. This has always been the case but now we are seeing increasing investment and risk taking on less developed countries, on a more frequent basis. In these transactions, you have the same issues as in traditional local markets, but more need for true local understanding, the best local and regional advisers and the ability to have strong legal, accounting, and finance teams in place to support and guide the businesses forward and also to assist them crucially in growing out of their home markets with their products and services.
This month, Erik Lazar, Director and founder of Transatlantic Law International (TALI), a global business law provider in more than 95 countries, explains how he and his firm are able to do this. TALI’s global presence and footprint in more countries than most with experienced teams in most major countries. he and his firm have considerable experience in making cross-border deals work and also always identify sound local accounting and tax partners that their clients can work with to support the acquired businesses going forward.
What are the most important factors to success in a cross-border transaction?
For a company, knowing the target inside and out to the greatest extent possible before the lawyers are brought in, if possible, is the single most important factor in my view.
Many deals have negative effects because they are driven by the desire to gain revenue streams quickly without looking at the target or the personnel or substance. AOL – Time Warner is a classic example on the macro side, but there are multiple smaller deals including single country deals which fall victim to what I call deal fever vs. sound analysis and motivation.
The other key factors are organising the deal team and all disciplines in advance, deal team coordination and getting the tax and finance due diligence done first, if possible - at least on a high level - before pouring on and in the other team resources. If the numbers don’t work, there may be little sense proceeding. In a cross border-deal cultural understanding and local knowledge are also critical.
How do you achieve effective communication and ensure a deal runs smoothly?
In the best of worlds, a company would structure a deal team in advance with key team leaders for each discipline (tax and finance, legal, environmental, IP, risk and Insurance, technology, HR assessment etc.) and integrate those teams in advance with the legal team head in these areas. Priorities should be set so that overall deal spend is minimized by concentrating on what is most important and rolling out due diligence in a stages as the most important issues become clear.
The reality is that most companies continue to move a deal as quickly as possible so that there is an ‘all in – all at once’ approach with teams working in parallel feeding into the central business team and not necessarily a great deal of communication – what is called the silo structure which means teams work alongside each other and only communicate at certain stages.
How you bridge the gap is relatively simple on the legal side – you have to make sure you have an effective overall team head and the best communicators as your specialist legal team and then make sure you have clear communications loops with the company and have regular updates so that all key issues and positions are filtered into a funnel leading to the SPA or APA which after all reflects what the deal is.
This creates in real time a running and constantly updated list of key deal issues and solutions. Indeed this is what we do and most experienced M&A counsels should do. It’s intuitive and simple if you have the right people on board which is a prerequisite of course for any such exercise.
We are also a big fan of getting to the key management sites and speaking to managers and employees early on, as the best due diligence is face to face without the investment bankers present – you get much more true information that way (the old fashioned way) than through a data room virtual or physical.
What are the common reasons transactions are cancelled after due diligence?
The core factors for failure at the d/d stage remain fundamentally the same with some shifts due to technology and changes in laws. The biggest reasons involve the numbers - i.e., the accounts, sales and contingent liabilities including hidden tax and social security charge exposure or sales tax non-compliance for example.
After that, there may be particular issues about the products or services or the supply chain, including over-reliance on certain products or supplies in the revenue stream. There may also be an over-reliance on a core set of customers.
After that you have typical issues with the inability to unwind certain assets or commitments or too complex a corporate structure so that the target should be restructured before the deal.
The usual hidden liabilities such as ethical issues and environmental problems could also be deal killers, of course. Most of these can be rooted out by a sharply focused upfront approach to deal making if one has time and the buyer is open to it.
Finally, new technologies and the ability of companies to operate globally and expand quickly, but not necessarily in accord with local law, can create issues including reliance on sales where not operating legally, lack of attention to consumer or other laws even where properly registered, lack of local licensing, poor attention to data protection; and again, security and cyber security issues or lack of the right personnel in the buyer and / or seller to deal with these issues if the company is moving internationally but too quickly.
What continuing legal support do you recommend after investment and why is this important?
The single most important challenge which seasoned acquiring companies often do very well is restructuring - or indeed they can allow companies to continue on a standalone basis if a portfolio approach is taken, but in a reorganised structure. In both cases, continuing outside legal support is vital as well as putting into place a cost effective legal team which is dedicated to and tuned into, the objectives of the buyer.
This is important because prior counsel would have been aligned with prior management (usually) and owners (more particularly) which creates a de facto and ongoing conflict in interest, both in terms of defending the status quo and management carried over, and also in managing any ongoing warranty and related issues, where the sellers are carried over management, or are significant personal shareholders in the new operation.
What we do is to provide a day to day service team immediately after the deal to support the acquired business on all corporate, commercial, labour, employment and related matters, through the transition and structuring. The team is led usually by the specialist counsel who engaged in the due diligence in those particular areas, as they will already have had familiarity with the company and hopefully have built relationships with the acquired management. The service team has to be lean and suited also to local management with costs brought down so legal support is in fact a benefit and not a burden, which we are also careful to do.
For the buyer it’s critical to take such an approach to make sure that issues are spotted early, buyer norms are being implemented across the board in everything from commercial terms to approaches to labour and employment issues and also above all in policies and company values as set out in rolling out compliance and ethics guidelines. In this way one also has an immediate team in place for the next deal in that country, our advantage being that we cover over 95 countries and more world-wide.
Will Brexit have any effect on cross border M&A in Europe?
If the United Kingdom remains in the EU trading zone or gets an equivalent offer (most likely by having to accept the primacy of EU law or certain EU laws), then there will be very little effect. On the other hand if not, then the UK will be likely seen by European business as another ‘third country’, albeit an important one for trade and there should be an impetus of buyers to focus on the UK as a separate single country market. That would increase M&A which is European law based and decrease M&A which is UK based. However, while predictions now cannot be relied on, contingent thinking and planning is a requisite. As the UK will continue with all EU laws and regulations being adapted as ‘local’ laws and eliminate them only over time, there should not be any short term effect in how M&A works in the UK for the relative short and medium term going forward in a legal sense. However, cross border filings in Brussels for multi-country acquisitions may either be eliminated (if the UK is seen as a separate country) or compounded (if a UK separate filing is needed, and also multiple European filings or a single Brussels filing). As noted, one can only surmise at this point and plan accordingly.
Businesses need to keep its eyes and ears on how matters develop over the Brexit negotiation period. Peter Sellar states that while it seems that the UK Government wishes to keep matters secret, the EU can be counted on to be transparent. He expands: “Thanks to that, we will be able to keep track of developments and the likely direction of travel. That should facilitate matters in terms of adapting or, better still, pre-adapting as we enter Brexit.” Peter has since founded a Brexit consultancy called Scotland’s EU Consultancy to navigate clients through the Brexit process; we speak with Peter on matters involving the UK leaving the EU and his previous role as Head of Competition.
Before you were called to the Bar, you worked as Head of Competition for Lloyds Banking Group – what were the main indications to a ‘good’ corporate deal?
I worked as Head of Competition and Regulatory in the insurance division. Indications of a good corporate deal – from the competition law point of view – were obvious. The earlier that the legal minds could be brought into the matter, the more likely issues down the line would be avoided. Necessarily, lawyers need to be kept in the background otherwise they can get in the way, but for as long as they have a shadowing remit with an invitation and encouragement to interject as required and as very much part of the team, the deal was more likely to run smoothly.
The issues that had to be dealt with tended to be ones where the business got carried away with itself, concentrating on internal targets for example, rather than thinking about the client. In short: personal greed would get in the way of treating customers fairly.
Since being called to the Bar in 2014, how did your role change? What new challenges did you face?
At the bar you are autonomous. You trade on your reputation. It is up to you to go out there and get that work and to keep on getting it because there is no wage or fixed salary. That is the principal challenge that all advocates face. In terms of changes to the work itself, life is much more focused on: (a) research and drafting, whether of opinions or pleadings and (b) preparation for and appearance in the highest courts. When you are busy, it is full-on work with no one to share the responsibility – “on your head be it”, in other words, but there is plenty of positive adrenalin.
Did you have any misconceptions of the European Courts before you were called to the Bar? What changes would you make to the EU Courts if you could?
I had practiced for 15 years in private practice and had appeared as a solicitor before the European Courts and Tribunals, so I was familiar with those courts. Personally, I would hope that – Brexit notwithstanding – the UK courts continue to borrow more from the tendency in the EU and focus on written pleadings in the first place and then a targeted oral hearing. There is a myth that one turns up and speaks for only 15 minutes in Luxembourg. My experience is the opposite – the judges come prepared and will grill you good and proper on the five or ten irksome issues they have identified. That stands in contrast with the UK way of doing things, which focusses too much on procedural obfuscation and an oral hearing at which one finally discovers what one meant by the written pleadings, only after having rehearsed every argument at virtual dictation speed. Too much hangs on human error at that stage in my view. Writing should be king, with the killer blows landed by mouth.
How do you expect cases to change throughout and post Brexit?
We have no idea at this stage how EU Law based cases currently being litigated before UK courts will be considered. It would strike me as most odd if, for example, any such case which is brought in accordance with the applicable procedural rules should be denied the opportunity to refer a preliminary preference to the Court of Justice, for example. Those already in train must – it seems reasonable to me – be grandfathered to their natural end. Whether that will allow their barristers and advocates to continue with the presentation is another matter given that they will no longer be members of bars of a Member State but perhaps that is a detail which will rank very low on the negotiations priority list. Unless there is clarity coming from those negotiations, what will the appetite be of client, lawyer and judge alike, to avail themselves of that preliminary reference opportunity? Given Scotland’s innate reluctance to engage (only 15 or so total references since 1973), I foresee none being sent from now on. All this, however, will not mean that EU arguments cannot be played out in national courts and the usual way of assessing them – by reference to CJEU case law for instance – will continue. But over time, the authority given to that case law will wane; it will take on a different sheen.
What after effects are you predicting to witness once the GDPR act takes effect in May 2018? I.e., what do you think clients will be seeking advice on?
May 2018 falls in the middle of the Article 50’s two year-deadline for negotiations. One year further on and the UK will have Brexit-ed. We can expect the Great Repeal Bill to anticipate the grandfathering of the GDPR after April 2019, and indeed the Government has stated that Brexit should not alter its application. It will, then, become part of UK Law and general advice to those affected is simply to adhere accordingly. Of the principal issues for concern, I imagine that they will include the following: the potential administrative penalties will motivate boiler-plate compliance; what falls within the broader definition of “data”; what constitutes “consent”; and how to ensure the right to erasure.
Peter Sellar
Founder of Scotland’s EU Consultancy (www.scoteuc.com / peter.sellar@scoteuc.com)
Advocate at Axiom (www.axiomadvocates.com / peter.sellar@axiomadvocates.com)
Tel 07917 018 274
Barbara is a trusted adviser and international authority on setting strategy and delivery of projects. She has received two doctorate degrees from British universities and has produced a body of published works endorsed by the leading global professional associations. She exemplifies an approach to life as a project manager that everything we face is a project - a collaborative enterprise requiring the right methods to resolve it. In her thought-provoking presentations, she promotes a 360-degree duty of care inside and outside of work. She speaks with Lawyer Monthly about the changes the field of law and construction could undertake to ensure problems are solved in an improved manner, and the key skills and motives behind her success as an exceptional project manager.
What does it mean for you to be a project manager? What attracted you to the profession?
For me being a project manager means sitting in the engine room of the business. I deal with the day-to-day projects and contracts that drive the success of the firm I work for and my clients. What attracted me is the lack of clearly established boundaries of what it means to be a project manager. The great majority of professions see the world in simple terms, for example in the legal profession you are either a lawyer or a non-lawyer. As a chartered architect, I realised that the boundaries of our professions are generally the greatest limitation to what we can deliver. Project and contract management offered me opportunities to deliver positive outcomes beyond what would be possible for me as a member of a perhaps more traditional and established profession.
How has the world of construction changed since you began in the profession?
The biggest shift I observe on a day-to-day basis, apart from the relentless march of technology - digitisation, deployment of enterprise project portfolio management platforms, building information management systems and drones - is probably the realisation that construction projects are made of flesh, not concrete; they are works-in-progress that never stop adjusting to the changing needs, technology and aspirations of their users. There is also a significant shift towards a genuine concern for wellbeing of the people we work with.
What changes had a significant impact for major cities and corporations?
The increasing concentration of the world’s population in cities and the growing accumulation of political and economic power by corporations create new threats and opportunities for improving global health. Our cities need to respond to these stresses and quickly – their liveability and competitiveness depend on it. At Arcadis we are proud to work alongside some of the world’s most forward thinking cities across the world, to compete and attract investment, deliver and develop transformational programmes that improve the quality of life and increase resiliency. Our Sustainable Cities Index explores the three demands of people, planet and profit to develop an indicative ranking of 100 of the world's leading cities.
What could construction companies do to avoid disputes and legal action? What cases could easily be avoided?
In construction, we tend to define a dispute as a situation where two parties differ in the assertion of a contractual right, which results in a decision being given under the contract, which then becomes a formal dispute. The industry is getting better at proactively addressing disputed issues and the majority of construction disputes are resolved privately. Arcadis’ data-driven review of projects and disputes, ‘Global Construction Disputes Report’, considers the most important activities in helping to avoid a dispute to be proper contract administration, fair and appropriate risk and balances in contract and accurate contract documents.
Could you suggest any legislative changes you would make to improve the outcomes of your work?
At present, we are obviously concerned with the potential impact of Brexit, given that so much of the debate concerns free-movement of labour. It is conceivable that any changes to labour market rules could affect the UK’s ability to meet long-term project commitments and could turn out to be a significant trigger for project problems and possible disputes over the next few years.
The leading issue for me is the instrumental control that has been imposed by the UK Government focusing on how buildings should be constructed which exacerbates, rather than solves, the energy consumption and CO2 emissions problem. There is certainly a need for the government to adopt an enabling role for the issue to be addressed at a scale commensurate with its magnitude.
Construction is certainly one of the major energy-consuming and carbon dioxide producing sectors; however, it is not the hardware of buildings – bricks and mortar – that is the sole source of the issue, but its software – the people who inhabit or occupy these buildings. It is us, after all, who are blissfully unaware of the critical mass of government strategy that has gone into the design and construction of our offices and homes, open the windows in our airtight buildings because it is too hot, turn on all the lights, with energy-saving bulbs of course, as well as our brand-new digital energy-saving televisions whilst the old, less energy-efficient ones join other unwanted goods in our bike storage space. This means that the potential of the current legislation to deliver significant CO2 emission savings and offer a genuine solution to the energy shortage issue is highly debatable.
How did your career path take you to the position of a Board Director of the International Association for Contract and Commercial Management (IACCM)? What was your main goal to achieve when your joined the board?
My vision for my professional career stems from my very early career as a volleyball player. At a mere 5’10’, I was at a disadvantage to the top European players who averaged 6’2’’ in height. What I achieved though, was a vast collection of fair play awards. This strong notion of fair play which accompanied me in sport, in the construction industry context, translates to an atmosphere characterised by openness, co-operation, trust, honesty, commitment, and mutual understanding among team members. Considering this parallel between sport and construction, I developed my personal and professional brand as a project manager around these values. In my first annual professional development plan, which I submitted shortly after joining Arcadis, my answer to the question ‘what is your career aspiration?’ was very different from those of all my colleagues, who identified the next step on the corporate ladder, such as ‘senior project manager’ or ‘partner’. Mine was ‘I will be the next Sir Michael Latham’. Taking forward Latham’s concept that through teamwork the construction industry could delight its customers and following the publication of Arcadis’s Disputes Report, whose findings demonstrate a growth in the value and length of contractual disputes in the construction industry and that the most common cause of disputes is a failure to properly administer the contract, I created the global IACCM fair play recognition – the Excellence in Contract Management Award. This award aims to recognise and promote those individuals who, through their ability to do the right thing, achieve the best results. This award is open to all contract and commercial practitioners globally, across all sectors.
As a Board Director of IACCM I also look at ways in which I can support the growth and organisational success of IACCM by promoting initiatives that develop a sense of pride and satisfaction among its membership. I would like to expand the ways in which IACCM supports and empowers its members.
You co-authored a reference book with key-players in the legal industry, Liquid Legal, that compels the legal profession to question its current identity and to aspire to become a strategic partner for corporate executives, clients and stakeholders, transforming legal into a function that creates incremental value. Can you expand on this?
Liquid Legal was an intense collaboration of over 30 authors: professors, legal counsels of multinationals, CEOs and COOs of leading legal process outsourcing providers, co-founders of legal search firms, pioneers in legal operations, attorneys and entrepreneurs. This resource provides a broad range of perspectives, advocating a shift that will see future corporate lawyers no longer being primarily negotiators, litigators and administrators, but intermediaries who link legal opinion within the context of the business.
My proposition revolves around the challenge of what if, in the construction industry, a contract administrator, contract manager or even a portfolio, programme or project manager, rather than being a construction professional with an appreciation of legal issues, happens to be a law practitioner trained in basic construction? Construction is one of the few uncharted waters for lawyers. While in most other sectors there might be complaints that lawyers are too intrusive, in construction, lawyers are very rare. Considering the average value ($51m) and length (13.2 months) of a construction dispute, the potential benefits to the industry of legally trained professional staff taking over contract administration and various project management roles are immense. With construction projects increasingly being aggregated into big complicated programmes, attracting additional risk as well as political and public attention, high-visibility disputes are not an option for their owners. The construction community should follow suit, and greater involvement of satisfied and professionally fulfilled legally trained professionals offers an opportunity for the industry to deliver excellent customer service.
ence of practitioners, executives and government.
The UK government triggered Article 50 on 29th March 2017. However, there is still little clarity on the repercussions of Brexit for European Union trade marks (EUTMs), including the issue of non-use.
One practical issue that is likely to arise is the unexpected risk of possible revocation claims. EUTMs are vulnerable to revocation if they are not used to a sufficient extent within a 5 year period from registration.
Extent of use
Until recently, the position had been widely understood to be that use in one Member State was enough, so long as it satisfied the criteria for genuine use. However, a 2015 decision in the UK Intellectual Property Enterprise Court1 cast doubt on this, the Court holding that in general, use in more than one Member State was required.
However, this has not been the approach taken by the EU IPO, or indeed the UK IPO or English High Court2, which have preferred the multifactorial analysis approach taken in the 2012 CJEU decision of Leno3 where the CJEU stated that “territorial borders of the Member States should be disregarded in the assessment of whether a trade mark has been put to ‘genuine use in the Community’…taking account of all the relevant facts and circumstances, including the characteristics of the market concerned, the nature of the goods or services protected by the trade mark and the territorial extent and the scale of the use as well as its frequency and regularity”. Taking this approach means that use of a trade mark in one Member State can be sufficient for genuine use if the particular facts and circumstances show the use is genuine.
Given the recent decisions of the English High Court and the UK IPO, it seems that the multifactorial approach taken in the Leno decision represents the position on genuine use.
Post-Brexit use
The issue post-Brexit is whether use in the UK will count at all. At the moment, a brand owner may only be making genuine use of their EUTM in the UK which is likely to be sufficient to maintain their trade mark (depending on the circumstances of the use). However, once the UK leaves the EU, it is not known whether or not use in the UK would be taken into account. If a very strict approach is taken and UK use is not taken into account at all, the EUTM owner would not be able to demonstrate genuine use and the trade mark would be liable to revocation. It is anticipated that use in the UK during the period in which the UK was a member of the EU would count but use after the date of Brexit would not. This gives a 5 year window from the date of Brexit for use of the trade mark to be made elsewhere in the EU.
Similarly, an EUTM holder can currently maintain protection covering the UK even if it is only using the trade mark in, say, Portugal and Spain. Post-Brexit this may not be the case as any continued rights in the UK (assuming EU rights are somehow converted or maintained in the UK as is expected) may be vulnerable to revocation if there is no use in the UK.
This could pose a problem sooner rather than later depending on if and how EUTMs are converted into UK rights. Several methods of conversion have been suggested including:
Although it is widely expected that some method of conversion will be negotiated, it is possible that EUTM holders may have to make fresh UKTM applications. If so, EUTM holders will have to make a declaration either that the mark is in use in the UK or that the applicant has a bona fide intention to use the mark applied for in the UK, which is not the case for an EUTM application. Applications for conversion are treated by the UK IPO as a new application, so even conversion applicants are required to make this declaration. For EUTMs which have never been put to use in the UK, this could be problematic, particularly if the grace period of 5 years to commence use has expired.
Points to note
Non-use periods in both the EU and UK are 5 years but businesses need to already be considering the possibility of making new filings to maintain registered protection in what is likely to be two jurisdictions and two markets rather than one. Conducting an IP audit to establish where the business’ registered rights are and the scope of their usage would be helpful.
(Source: Dechert LLP)
Last week Governor of the Bank of England and Chairman of the G20's Financial Stability Board, Mark Carney said London is “effectively, the investment banker for Europe.”
Many believe companies and financial institutions should move their trading to the continent, while others believe this is non-sensical given London’s capital position globally and in the markets. Some companies, such as Goldman Sachs, HSBC and UBS, have already confirmed the eventual moving of staff and trade abroad, once the UK leaves the EU.
At the same time, the UK is faced with a lack of skilled labour, and due to the uncertainty surrounding changes in immigration law and the movement of employees or recruitment across the continent, bosses of big companies such as Barclays are calling for the freedom to recruit freely outside of the UK.
This week Lawyer Monthly hears Your Thoughts on the moving of business to the EU post-Brexit, and below are some comments from reputable sources within the business sphere.
Bertrand Lavayssiere, Managing Partner, zeb:
For those institutions with EU clients in their roster, it is more than likely that they will have to move to the EU post Brexit. However, there are a few buts…
One of the critical aspects is ‘passporting’. At present, banks can operate within the EU under UK regulations with relatively light approvals required from local regulators. This is of key importance for large sectors of the industry, such as asset management, where more than a trillion GBP is under management for EU-based investors, corporate lending, reinsurance and securities trading platforms, to name just a few. If this is maintained - which seems unlikely today - then the need to move is not crucial.
The long-standing cooperation between EU and UK regulators could ease some of the pain if governments agree that joint efforts to maintain alignment will help the overall goal of financial stability. Furthermore, many of the pertinent regulations are global anyway - those from the Basel Committee or the IASB, for example.
With regards to the London market, there are a number of platforms for specific product lines (foreign exchanges, swap contracts, equity derivatives, etc.) to facilitate compensation, settlements of trades among market players, and volumes to ensure liquidity. In simple terms: London is the place for such platforms. Disagreements have already taken place with regards to whether those platforms could remain in London. If the decision is yes, it will be business as usual. If, however, the answer is no (the most probable outcome), then the trading platforms and back offices of stakeholders have to move. This includes the day traders and market makers who are crucial for the liquidity of the market.
There is a whole list of further variations on this issue. But all in all, it is essential that a financial institution with clients based within the EU considers its strategic options as of now. Establishing a presence in the EU needs at least 18 months from a regulatory stand point. As many EU regulators require a fully-fledged decision making unit through proper governance, the analysis of the changes in delegation of authority schemes and the assessment of potential human resources impacts must be considered early on in the process.
Paramount in the decision-making process should be the institution’s business potential, to follow their customers, and ongoing requirements, rather than solely the regulatory aspects.
Ben Martin, Founder, The Brexit Tracker:
Moving your business away from the UK is a major undertaking. Perhaps you were considering this prior to the Brexit referendum or more likely, you believe leaving the EU will make your business operations untenable. But before taking action, we suggest you calculate and monitor the financial impact of Brexit on your firm and compare this to the emotional ‘pull’ of moving to the EU.
Here’s our 5-point plan:
In summary, firms need the full “Brexit facts” before undertaking a move to the EU – as the facts are in short supply, they should start their own Brexit monitoring system.
Oliver Watson, Executive Board Director for the UK and North America, PageGroup:
As is to be expected, multinational businesses are more cautious than UK SMEs when it comes to hiring in post-Brexit Britain – and, as I see it, there are two reasons for this.
With a variety of other investment opportunities elsewhere across the globe, large international businesses – who are under no obligation to invest in the UK – have the ready option to divert investment to other more certain markets. As a result, their talent acquisition will naturally become focused in a different direction or geographical location.
However, where SMEs generate the bulk of their revenues in the UK don’t have that option – they just have to get on with it. This means while multinationals are feeling cautious about UK hiring, for SMEs it is often business as usual. This is a pattern we’ve seen time and time again in the face of uncertainty.
Mary Wathen, Partner and Head of Agriculture and Rural Affairs, Harrison Clark Rickerbys:
The Agricultural sector relies heavily on EU workers. Around 15% of the total workforce is from outside the UK. The uncertainty around the status of EU workers threatens to hit the agricultural sector hard if the status of EU workers isn’t clarified.
Despite the uncertainty, there are steps which savvy agricultural employers can take now to minimise the disruption. Taking action ahead of time will help maintain the flow of workers for each harvest, protecting both the business and the livelihoods it supports.
Employers need to ask themselves some key questions about their workforce:
For smart agricultural employers, the so-called crisis provides an opportunity to build their employer brand. Employers are enhancing their working relationships with key employees who meet the requirements for permanent residency and want to remain – introducing them to specialist agricultural immigration advisers and supporting employees through the application process.
But this isn’t the solution for the seasonal workforce shortage. The fruit-farming industry employs 29,000 seasonal workers, who go back to their home countries after six to nine months in the UK. They won’t be eligible to apply for permanent residency. Virtually all of them come from the EU, mainly Romania and Bulgaria, but also Poland and Hungary. If the Government ends freedom of movement, a return to the old-style permit scheme seems the only option to protect the harvest and UK agriculture.
Richard Thomas, Employment Partner, Capital Law:
One key issue for the forthcoming Brexit negotiations will be the issue of EU Immigration following our exit from the UK. There is no doubt that the UK Government will seek to put in place some form of “controls” on EU immigration after the UK leaves the EU but it is entirely unclear as to what form these controls will take and/or who they will apply to. Will the controls apply to unskilled, semi-skilled or skilled EU migrants? Who makes the decision as to what constitutes a semi-skilled or skilled role? Is there any appeal against this decision?
It has also been suggested that the UK will allow all current EU nationals working in the UK to remain in the UK after the UK leaves the EU but it is not clear whether this will be indefinitely and whether it will apply to non-working spouses and/or children. Ultimately no promises have been given and it is a matter for negotiation between the EU and the UK, although it is hoped that the issue will be resolved quickly.
In addition, in April 2017 the UK Government introduced the Immigration Skills Charge imposing a charge of £1,000 per year for employers sponsoring a worker from outside the EU. It is quite possible that the UK Government will extend this charge to EU workers who do not have rights of permanent residence once the UK leaves the EU.
Given the current uncertainty and potential cost the best advice to SME’s with EU workers who have been working in the UK for at least 5 years is to get them to make an application for Permanent Residence as this should provide a guarantee of an individual’s continuing right to work in the UK.
However, individuals making the application will have to complete an 85-page form and provide huge amounts of supporting documentation confirming what they have been doing in the UK for the last 5 years. This is an arduous process to say the least but there appears to be little alternative as (unlike some EU countries such as Germany) the UK has no central register of the identities or even the numbers of EU citizens currently working in the UK. The Home Office has stated that it is looking to use an online application process but there does not appear to be any additional funding for this.
Katherine Dennis, Associate in the Employment, Pensions and Immigration team, Charles Russell Speechlys LLP:
The EU referendum has caused a lot of uncertainty for EU nationals and their employers as to what their position is in the UK and what will happen when the UK exits the EU. This is clearly an important issue for many SMEs, especially as sponsorship of overseas workers through the UK’s points-based system becomes increasingly expensive.
Importantly, free movement will continue to apply until the UK formally leaves the EU. This process was started on 29th March 2017 by the UK government giving notice under Article 50 of the EU treaty. There will now follow a two-year negotiation period, which could be extended by agreement of all member states. The earliest the UK would leave the EU is therefore the end of March 2019. Until then, EU nationals are still free to work in the UK.
The UK government has clearly stated that it wishes to control migration from the EU, while still attracting those whom it considers have the most to offer the UK. It is highly likely therefore that the UK will introduce measures to restrict free movement. It is also therefore likely that it will be harder for employers to recruit EU nationals and it may be difficult for EU nationals to work in the UK on a self-employed basis.
At the moment, there is no firm indication as to the type of system which might be put in place and much depends on what the UK government is able to negotiate with the EU.
Possibilities include a new work visa system for EU nationals or expansion of the current points based system, which enables employers to sponsor skilled workers in the UK (although it is currently limited to professional roles at a certain salary). It is unlikely visas will be required for short business trips. Other possibilities include retaining limited free movement with measures to cap numbers, such as quotas or temporary ‘cooling-off periods’. Concessions may be made for sectors where there is a recognised labour shortage.
The UK government has stated that it intends to consult with businesses and communities to obtain the views of various sectors of the economy and the labour market. It is therefore crucial that employers and business-owners who are concerned about the impact of Brexit on their workforce respond to the government’s consultation when it is issued.
In the meantime, EU nationals who are eligible to apply for permanent residence (i.e. those who have been resident in the UK for five years or more) or British citizenship should do so now to ensure their continued right to work in the UK. EU nationals who have not reached the five year point when the UK exits the EU are in a more vulnerable position. It is sensible for those EU nationals to apply now for an EEA Registration Certificate, which confirms that they are currently living and working lawfully in the UK under EU provisions, in case this fact becomes important in any future transitional arrangements.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
As General Counsel, Ann Shuman is responsible for advising senior management and the DTCC Board of Directors on legal and regulatory matters. She also manages the company’s global legal team and serves on a variety of internal governance committees. Even though she states: “that’s really no different from the General Counsel role at any large, regulated company”, she does say that one of the most challenging aspects of the job for any General Counsel is balancing one’s time between acting as the senior legal adviser to the firm and serving as the leader of a group of busy professionals who cover a breadth of complex legal issues, where you can’t possibly keep up with all of the substantive matters they’re working on. Ann explains: “DTCC is fortunate to have a great group of lawyers with deep expertise and experience in a corner of financial services that can be arcane, but is also indispensable to the smooth functioning of the securities markets.”
In this exclusive interview, Ann speaks more on her role and the financial sector.
What legal and regulatory challenges does the financial services industry face? How does DTCC help guide the industry in the best way possible in response to these challenges?
The industry has experienced a tremendous pace of change since the financial crisis. In fact, regulators are still finalising rules governing new requirements in some areas, whilst at the same time regulators and legislators are starting to assess the impacts and effectiveness of rules issued earlier. DTCC plays a unique role in the industry because our clearing agencies and trade repositories are critical tools for satisfying the new requirements. In particular, clearing has become much more important. Our services help the industry comply with the new rules, better understand and manage risk, and reduce capital pressures.
At DTCC, we’re proponents of strong regulation that increases transparency, improves the functioning of the markets and mitigates risks – particularly systemic risk. At the same time, we want regulation to work, and we want policymakers to be informed on potential unintended consequences.
How has advanced technology changed the legal sector over the years and what developments are you excited to witness?
While technological changes have allowed all industries to work and operate more efficiently, so-called disruptive technologies have not yet been very impactful in the legal sector. However, new technologies are having a great impact on financial services and, as lawyers in this field, we can’t be effective if we don’t understand those impacts or fail to evaluate how they may alter behaviour or the ways in which securities markets operate.
Technological advancement will ultimately benefit investors and the markets, but there can be hiccups if the regulatory environment isn’t keeping up with the pace of change. At DTCC, we strive to be thought leaders on new technologies in financial services – the potential uses of distributed ledgers in clearance and settlement is a good example. We also work behind the scenes to find the pathways for the regulatory framework to adapt – if needed – to the ways in which new technologies will change back office operations.
The finance sector is often vulnerable to cyberattacks – what more do you think could be done to ensure firms remain protected?
Cybersecurity is top of mind for everyone operating in the financial services industry. For example, in DTCC’s Systemic Risk Barometer study, a bi-annual survey we conduct to identify current and emerging risks in the marketplace, respondents have cited cybersecurity as the top risk to the industry for three years in a row.
Market participants have been focused on this area for some time, and financial services regulators globally have now elevated the conversation to ensure preparedness and appropriate responses to cyber threats. The CPMI-IOSCO cyber resilience guidance and the European Network and Information Security (NIS) Directive are both examples of regulators successfully focusing much-needed attention on this important issue.
Common regulatory frameworks are helpful as they can be leveraged industry-wide. In our view, this is more effective than implementing overly prescriptive mandates that may not match diverse risk profiles across organisations. Moving forward, we’re encouraging regulators to harmonise cybersecurity mandates and guidelines to ensure firms are able to leverage best practices.
Also, as a result of the evolving nature and increasing emergence of cyber threats, there is a need for a greater level of interaction among financial firms. Organisations must communicate with each other and share threat intelligence information in order to defend against these attacks, and policymakers should promote threat intelligence sharing as a critical tool in the industry’s defences.
How does the changing nature of financial services affect your role? How difficult can it be to stay on top of things?
The industry has undergone so much change in recent years. Regulatory reform has really reshaped financial services. There is still a lot of uncertainty, particularly in the US with regards to how the Trump administration and Congress will proceed with proposals to pull back financial services regulation. It is inherently complex because of the sheer number of new rules that have taken effect since Dodd-Frank was passed. Firms have restructured, client expectations have changed, and industry practices have adapted. The same can be said about Brexit.
The financial markets are globally interconnected. We feel strongly that regulators and policymakers must coordinate and cooperate across jurisdictions. A fair playing field with clear rules promotes efficiency and protects all players, and coordination in a future crisis will be essential to reduce systemic risk.
DTCC offers several different services – in your opinion which are the most difficult from a legal stance? Do you think more could be done to ensure reduction of these challenges? (i.e, if you could change any legislation involved, what would you change?)
DTCC faces different types of challenges for each business area. In some cases, there are challenges because the rules have not kept pace with changes in the marketplace. Particularly in the US, legislative changes are tough to achieve, and as a result many of our services operate within regulatory frameworks that were designed for the markets as they existed decades ago. The regulatory rulemaking process also takes quite a bit of time, and the agencies that regulate financial services have a lot on their plates.
In other parts of our business, we face challenges for the opposite reason: the rules are new, and they may not interact with industry structures in the way that regulators intended. That doesn’t mean the regulatory processes are flawed: on the contrary, new rule-making should be a careful and deliberative process, with lots of input from the industry and other interested parties. Some regard that as a sign of capture, but in my opinion it’s not. The regulators take their roles very seriously and want to get it right, without unnecessary expense or disruption or unintended consequences. That’s quite a balancing act. It would be great to see increased opportunity for policymakers and the industry to evaluate regulatory impacts over time and adjust where appropriate.
What would you advise young lawyers in order to prepare themselves for a career in finance/corporate law?
The ability to stay up-to-date on the drivers of the business is critical in financial services or any fast-paced, heavily-regulated industry. I strongly believe that you are at your legal best when you are knowledgeable about the business you support, its objectives and the interests of key stakeholders. This enables you to understand the motivations and intentions around, for example, the contract you are trying to complete or the joint venture you are attempting to launch.
At a personal level, I always advise young lawyers to stay open to unexpected possibilities. While following the established path after graduating from a law school will likely lead to a successful career, sticking only to that path also sets limitations on what you might be able achieve. Remaining open-minded and seeing each opportunity through your own personal prism and without being too attached to established norms might just lead you to a role that is more rewarding over time.
What are your upcoming goals for DTCC; what are you aiming to achieve in the next year?
Major political developments in the US and Europe will impact regulatory agendas, creating new risks and new opportunities. We are ready to play our part in that process. Tackling new challenges on the regulatory front is an inherent part of the job. My personal goal is to ensure we are always improving on that front, working to influence good outcomes and adjusting to change as it comes.
This article has been written by Andrea Wallack, CEO and Founder of NightOwl Discovery.
General Data Protection Regulation (GDPR) is scheduled to come into force on 25 May 2018. It will apply to all companies worldwide that process the personal data of European Union (EU) citizens –tightening the rules for obtaining valid consent for using personal information. GDPR compliance is a critical task for every professional services firm and will have an impact on other issues such as Brexit and international trade.
GDPR introduces new legal obligations in only just over a year’s time – and preparing to meet these obligations in time will be a challenge for many. The penalties are severe – failure is not an option. A two-tiered sanctions regime will apply. Breaches of some provisions, which lawmakers have deemed to be most important for data protection, could result in fines of up to €20 million or 4% of global annual turnover for the preceding financial year, whichever is greater. For other breaches, the authorities could impose fines of up to €10 million or 2% of global annual turnover.
The impact on legal businesses will be wide ranging. Data collection for legal discovery, for example, will be perilous due to the potential of enormous fines under GDPR. It looks likely that the UK and US will need some type of privacy shield framework to work under, similar to the Swiss-US privacy shield. Discovery work will need to be compliant with a vast array of regulations encompassing GDPR and any privacy shield that is set up.
GDPR opportunities
At the same time, the introduction of GDPR will provide a real opportunity for many businesses. Although the initial focus may be on preparing to comply with the regulations, the purpose of GDPR is to harmonise data protection law across Europe, ultimately making it far easier to share data across borders. At present, an organisation operating throughout Europe may have as many as 28 different legal data protection regimes to address; from May 2018, there will be a single consistent legal regime.
There are a number of best practices that can be put in place ahead of GDPR – and key stakeholders such as legal, IT, compliance and senior management teams should take ownership of these right now:
International ramifications
The implementation of GDPR will have international ramifications. EU data protection law will still apply to post-Brexit UK, which very well may have to adopt some form of GDPR law to remain compliant with EU standards so that businesses can continue to streamline trade with the EU.
When the regulations come into force, any European data protection authorities can take action against organisations irrespective of where they are based in the world. Globally, two thirds of firms are reviewing their business strategy ahead of GDPR. Law firms in particular should be well advanced in their preparations for the impact of GDPR on their own and client data processing activities –failure to assess every aspect of GDPR could be far reaching.
Andrea Wallack
CEO and Founder of NightOwl Discovery
The legal sector has been praised for leading the way on preparations for the EU General Data Protection Regulation – after a survey revealed other industries are mistakenly ditching reforms because of Brexit.
The regulation, which has been years in the pipeline, is designed to harmonise data protection regulation across Europe and provide citizens with more control over their personal data.
It has been ratified by the UK and is due to come into force in May 2018 – almost certainly before Britain completes its exit from Europe, despite the recent triggering of Article 50.
However, a survey of IT decision makers by information management experts Crown Records Management has revealed some shocking results.
It showed that:
Results in the legal sector, however, were very different. The results in this industry showed:
John Culkin, Director of Information Management at Crown Records Management, believes the results are good news.
He said: “These results are encouraging for the legal sector because so many other sectors have failed to understand the impact of the EU GDPR and why it will affect them despite Brexit.
“Firstly, it is likely to be in place before any Brexit. Secondly, although an independent Britain would no longer be a signatory it will still apply to all businesses which handle the personal information of European citizens.
“When you consider how many EU citizens live in the UK it’s hard to imagine many businesses here being unaffected. So it is vitally important that the legal sector has understood the implications.”
UK officials and politicians were heavily involved in the drawing up of the new regulation and Culkin believes the general principles behind it are set in stone.
“The reality is we are likely to continue to see stringent data protection in an independent UK rather than a watered down version,” he said.
“Our survey revealed that at least half of companies across the board saw Brexit as an opportunity for Britain to position itself as the safest place to do business through even more robust legislation.
“In fact, this premise was also supported in the legal sector with 55% calling for more robust data protection in an independent UK.
“This means the best course is to prepare now and have a watertight information management system in place as soon as possible. This issue is not going away.”
The EU GDPR will bring in massive fines for data breaches - as high as 20million Euros or up to 4% of global turnover - as well as new rules to ensure privacy is designed in to data policies, plus new rights for citizens to ask for their personal data to be edited or deleted.
(Source: Crown Records Management)
