Sometime back in the 1990s, when I was a student in Hungary, I accompanied some Hungarian friends one weekend on an excursion to Slovakia. Our destination: the Tatry Mountains, a beautiful landscape for hikers, nature lovers and outdoor enthusiasts. These plans hit a snag, however, when we got to the Slovak border. The border crossing we chose, the one my friends had been using for years, turned out to be a local border crossing. This meant that only local citizens – Hungarians and Slovaks – could pass through. I, as an American citizen, could not. While my friends argued passionately with the border guards, I remember standing on this rural highway gazing at the only human structures in sight, the Hungarian and Slovak border guard huts. There was a white line painted across the road – a line I could not cross.
The British are now facing this same scenario. And as Scotland contemplates another independence vote, the name "Britain" itself may soon become history as the Union of 1707 is dissolved. Have we retreated into an age of economic nationalism?
Now, before anyone panics, the actual exit may take years and it is in everyone's practical interest to make it as painless as possible. Still, what does this mean for consultants?
For one thing, many global and regional firms use London as their headquarters. A Brexit will likely mean moving people, resources, data and funds between the UK and Europe will become more complicated (and expensive), at least for the short term. It might mean that these firms will have to open alternative EU-based headquarters for their operations in the EU. Serving UK clients will now become more complicated as well. And not just for Europe: the UK is (was?) a headquarters for service delivery to the Middle East, Sub-Saharan Africa and even India and Asia for many firms.
It will also likely mean a messy recalibration of the UK's industry regulations. As banking analyst Chris Skinner noted on his blog yesterday ("Chris Skinner's Blog"), given how intertwined EU and UK regulations are, there will likely be a lot of continuity but at least some EU-specific regulations and laws will be changed to reflect the UK's new international situation. But forcing industries already tapped-out from massive post-2009 compliance spending risk and into a new regulatory regime will have unpleasant consequences, in terms of jobs and investments.
The Brexit is already having an impact on currency markets, but what will the long-term effect be? And bonds? Credit? What will it mean for global capital markets as one of the world's leading financial centers becomes somewhat less accessible, and governments around the world are forced to renegotiate regulatory agreements with London?
All of this translates into work for consultants, lawyers and investment bankers who are at their best when things go wrong (for someone else). But it also means that delivering services just got more complicated, and with clients facing new waves of regulatory change, it means fee pressures as well.
Now that Brexit is a reality, the chips will fall where they will in the coming weeks, months and years but the real take-away for consulting clients is the need now to begin developing (if they haven't already) a true financial strategy. No matter who your company is, wherever you are in the world, your risk profile has just shifted. And what are your plans to deal with changes to your tax structure? What flexibility have you built into your investments? Expect to spend more on reporting and compliance again, of course. Cash management, budget & financial planning – all need to be revisited. Your growth strategy also just got a lot more complicated. We're in an age when merely dotting i's and crossing t's is not enough. Financial risk & controls are no longer just defensive measures; they are key components to a viable growth and market strategy.
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