Cash & Liquidity ManagementCash ManagementBrexit: What does last week’s Westminster drama mean for business?

Brexit: What does last week’s Westminster drama mean for business?

It’s been an incredibly dramatic week for Theresa May at Westminster her EU exit deal firmly rejected by MPs and she was then forced to defend her government in confidence vote.

It’s was an incredibly dramatic week for Theresa May at Westminster. Not only was her hard-negotiated EU exit deal firmly rejected by MPs in a historic defeat, but she was then forced to defend her government in a worryingly close confidence vote.

The Prime Minister has since emerged from the rubble with her government intact, but she’s running out of time to strike a viable exit deal that both the European Union and Westminster MPs can stomach. With zero indication the government plans to ask Michel Barnier for additional time to quell domestic infighting, the UK is still hurdling towards a 29 March departure date.

That leaves lawmakers with exactly ten weeks to develop a coherent negotiating position, return to Brussels and strike a deal – and although Theresa May and her team have reportedly spent the last two days meeting with opposition parties in order to try and establish some sort of consensus, it now appears as though parliament is totally gridlocked.

Labour Party leader Jeremy Corbyn has publicly refused to take part in discussions, advising his fellow MPs to do the same. Regardless, Theresa May had already promised in a statement to the House on Tuesday night that she would “table an amendable motion by Monday” concerning a strategic way forward – and so some degree of cross-party talks are expected to carry over into the weekend with a view to produce a new plan.

Yet while MPs continue to debate over how best to proceed with Brexit and avoid a no deal scenario, flummoxed business leaders appear to be losing hope.

In a letter published in The Times on Thursday, more than 170 business leaders wrote to both main parties begging them to settle the dilemma by returning to voters with a second referendum.

But analysts at EY say the probability of a second referendum is low. Instead, they’ve now fixed the odds of a no deal scenario at one in five – placing it in the same likelihood as the adoption of a Norway-style deal or some form of hybrid customs arrangement.

But PwC’s Head of Brexit issued a statement Tuesday night advising organisations to plan for the worst and “activate their no deal plans” immediately.

Some businesses already appear to be heeding that call.

Earlier this week, the £36bn investment manager Hermes announced it had just established an Irish domiciled management company and was preparing to open a new office in Dublin in the wake of the UK’s looming political uncertainty.

In a statement on Wednesday, Hermes CEO Saker Nusseibeh made clear the firm had been running a Brexit Mitigation Project based on the presumption of a hard Brexit since 2016. That being said, he also pointed out that no amount of preparation could sufficiently shield the company and its investments from the ripple effect of a no deal scenario – with particular worries over “the pensioners whose capital” they look after.

“We are watching closely to understand the secondary effects on stocks and currencies, inclusive of sterling, and the specific industries that are tied to frictionless trade,” he said.

“Most people would prefer to see an end to uncertainty. However, the sad truth is that continued uncertainty has prevailed, and there appears to be no clear plan B.”

Hermes isn’t alone, and businesses at every level appear to be preparing for the worst.

Dr Adam Marshall, Director General of the British Chamber of Commerce, said in a statement Tuesday that UK companies were “activating contingency plans or battening down the hatches and halting investment” in the wake of this week’s political drama – while KPMG announced a new strategic partnership Wednesday with the Recruitment and Employment Confederation with the specific intention to offer businesses regulatory guidance around an impending hard Brexit.

What does a hard Brexit actually mean for CFOs and Treasury teams?

First and foremost, a no deal scenario has the ability to wreak havoc on accounting, cash and economic positions by way of predicted foreign exchange volatility. Meanwhile, regulatory divergence in the event of a no deal scenario could also mean that UK financial institutions have restricted access to the EU’s payment infrastructure, including the Single Euro Payments Area (SEPA) schemes.

Pile on the issues of counterparty risk, staffing questions surrounding the rights of EU workers in the UK and the likelihood that the UK will drop out of the EU’s Parent-Subsidiary Directive and the Interest and Royalties Directive, and it’s little wonder business leaders have spent the tail end of this week begging MPs to establish a consensus and go back to the EU for any sort of deal.

A no deal scenario will create serious hurdles for treasury teams across a variety of industries – and unless lawmakers are able to reach some sort of compromise in the days to come, firms have little choice but to continue enacting their contingency plans.

“Time is running out to avoid a chaotic ‘no deal’ Brexit that would be catastrophic for the UK economy,” UK Finance CEO Stephen Jones said in a statement Wednesday.

“Firms in the finance industry have put contingency plans in place to minimise disruption for their customers in a ‘no deal’ scenario but critical cliff-edge risks remain, including on the transfer of personal data and the operation of cross-border contracts.”

Theresa May is expected to return to the House with some form of plan B on Monday. Yet the way cross-party talks have progressed thus far, there appears to be little indication business leaders will have much to cheer about in the week ahead.

Whitepapers & Resources

Transaction Banking Survey 2019

Transaction Banking Survey 2019

TIS Sanction Screening Survey Report

Payments TIS Sanction Screening Survey Report

Enhancing your strategic position: Digitalization in Treasury

Payments Enhancing your strategic position: Digitalization in Treasury

Netting: An Immersive Guide to Global Reconciliation

Netting: An Immersive Guide to Global Reconciliation