In a new Special Report, we look at the challenges that will come as the U.K. legislative and regulatory landscape diverges from that of the E.U.
For many, 2020 will be remembered as a year where everything was turned on its head. The COVID-19 pandemic is, undeniably, the largest business disruptor the world has experienced, and it dominated agendas for many in the legal and business world for the past year.
Of course, even before the pandemic struck, significant changes were anticipated by many businesses in the United Kingdom (the U.K.) and the European Unions (the E.U.) as Brexit reached its endgame.
With just days to go before the Brexit transition period came to an end, the U.K. and the E.U. reached a deal on future relationship agreements. However, while businesses may breathe a sigh of relief that Brexit is “done” — it is not yet complete. The future relationship agreements should be seen as a framework to build on in future negotiations as the U.K./E.U. relationship develops further. All of which, of course, points to more change.
To shed further light on this, Thomson Reuters Legal Insights Europe has released a new Special Report, Getting ahead: Navigating legislative change post-Brexit, which describes how much of that change will come as the U.K. legislative and regulatory landscape diverges from that of the E.U.
The European Union Withdrawal Agreement Act 2020 maintained considerable legal continuity after the U.K.’s withdrawal from the E.U. by enabling the U.K. to give effect to most E.U. law until the end of the Brexit transition period. With the U.K. outside the orbit of the EU, the European Union Withdrawal Act 2018 aims to avoid falling off a legal cliff by domesticating E.U. law, as far as possible, into a category known as retained E.U. law. However, much retained E.U. law requires amendment, and there are more amendments to come.
You can download a copy of the new Special Report, Getting ahead: Navigating legislative change post-Brexit, here.
Tracking legislative changes can be tricky in the best of times, and as U.K. legislation diverges from the E.U.’s, the task will become ever more complex, more time-consuming, and more challenging. As the report demonstrates, legislation divergence can often mean increased costs for businesses. A study by the Organization for Economic Development in Europe (OECD) and the International Federation of Accountants (IFAC) showed that legislation divergence was a moderate-to-substantial barrier to growth.
As the U.K./E.U. relationship takes effect and details of divergence become known, the need for clear, accurate and up-to-date information will be imperative as lawyers to provide guidance and advice on managing risks and leveraging opportunities to their clients.
As the special report indicates, the U.K./E.U. future relationship agreements will be a key part of the European business landscape for the foreseeable future. Further, resulting regulatory and legislative divergence is already impacting businesses and law firms in several fundamental ways. Legal advisors will need a reliable, comprehensive, and efficient tool for legislative comparison that will allow for prompt analysis and assessment of the impact of the changes. This would enable lawyers to assist their clients and organizations to formulate the appropriate legal and business strategy.
The OECD/IFAC study suggests that legal teams that can master this challenge will have the potential to deliver extraordinary value by helping their organizations and clients minimize costs and risks. The financial services companies responding to the survey incurred average costs equaling 5% to 10% of their annual revenue, especially when “regulations are opaque, and information regarding requirements that are divergent across different jurisdictions is difficult to acquire.”
Given that the future relationship agreements are seen to be merely a cornerstone for further developments — which inevitably means more change — businesses will need practical advice on how best to navigate this dynamic space. As legislation diverges, compliance issues and their related costs are likely to increase. In the near term, businesses may struggle to know the best thing to do and so will need expert guidance that is based on a thorough understanding of the new legislative landscape. For businesses with operational footprints in both the U.K. and the E.U., the challenges will be significant.
Whether your business is directly affected by Brexit or not, change is likely to be on your horizon. Businesses in the U.K. and the E.U. are currently in a period in which external factors are demanding significant policy responses in ways that industries haven’t seen for decades.
The economic damage caused by the COVID-19 pandemic has been immense and recovery is likely to be drawn out, difficult, and have significant policy implications. The pandemic has also accelerated digitalization in many sectors, which will present future challenges and opportunities as well.
Further, economic recovery may present countries with a chance to put sustainability near the top of their agenda in order to achieve carbon reduction targets. More specifically, in the U.K, many in parliament have spoken about the need to rebalance the economy to address regional inequalities. These are generational policy issues that apply globally, which means that change, complexity, and uncertainty are all on the horizon.
Organizations will need to be proactive in the coming years to ensure they stay abreast of changes. In helping businesses meet this challenge, their lawyers will need comprehensive answers quickly with technology-enabled innovation becoming paramount.