Regulatory Outlook | Brexit special edition | July 2018

Written on 26 Jul 2018

Foreword | Brexit and regulation

Welcome to the latest edition of Osborne Clarke’s Regulatory Outlook.

With less than a year until the UK formally leaves the EU, Brexit continues to dominate the political and news agendas. Yet the shape of the future trading relationship between the UK and EU is still far from clear and even the UK-EU Withdrawal Agreement, which would provide a much-needed ‘status quo’ transition period, is dependent on the resolution of significant sticking points.

This edition of the Regulatory Outlook attempts to answer two of the questions that we are asked most frequently by clients: how will Brexit impact on the regulatory environment that our business operates in? What does that mean for our cross-border trade?

In looking at these two issues across 16 areas of business regulation, a few common themes emerge:

  • We are not expecting a “bonfire of regulations” in the UK post-Brexit, whatever the future trade deal looks like. This is in part because maintaining common regulatory standards assists businesses trading across borders and in part because the UK government has committed to upholding current levels of protection for the environment, workers’ rights and product standards. But it is also a reflection of the fact that the UK, and the UK’s many regulators, have been influential in shaping business regulation in the EU in recent years and are likely to keep following the same path, at least initially.
  • There are a number of important EU regulatory reforms in progress; the speed of the legislative process will determine which of those reforms will be automatically ported into UK law post-Brexit. This is because under the (draft) Withdrawal Agreement, the UK would be required to implement any new EU law brought in during the proposed transition period, from 29 March 2019 to 31 December 2020. This would only apply to EU law that is both “in force” and “in effect” by 31 December 2020. As a result, any EU Regulation subject to an implementation period that extends beyond that date, or EU Directive that requires implementation in national law but has not been implemented in the UK by that date, would not become part of UK law.
  • In many areas, businesses may need to comply with parallel regulatory regimes, even if the standards are equivalent under each. There are very few existing mechanisms for the EU to recognise “equivalent” or “adequate” regimes of non-EU states (which of course the UK will become – a “Third Country” in EU parlance). Those that do exist (such as for data protection and certain aspects of financial services) are typically operated unilaterally by EU bodies, rather than being reciprocal arrangements.

For businesses, the good news is that the substantive regulatory and compliance picture is likely to remain relatively stable as the UK leaves the EU. In most cases, businesses will be dealing with the same regulators in the UK, although some, like the Competition and Markets Authority, will be given expanded remits and powers. Businesses may need to also deal with regulators in other EU Member States, if the UK loses access to “one-stop-shop” arrangements, such as in data protection or competition regulation. Businesses may also need to get used to using new systems and processes, such as in regulated procurement, where public contracts will be published in the UK’s Contracts Finder rather than the Official Journal of the EU, but the regulations will remain essentially as they are now.

The real change is likely to come further down the line. The UK has traditionally been a strong pro-business voice in the shaping of EU regulations. The absence of that voice could have an effect on the direction of future EU regulation, which those trading in the UK may still need to follow – either to ensure that their products or services can be sold into EU markets, or because the UK decides to or is required to maintain alignment with that area of regulation.

For now, there is much that businesses can be doing to ensure they are prepared for both the risks and the opportunities that Brexit could bring. This may include risk-assessing supply chains, auditing key contracts or putting in place contingency plans. For many, it will also mean the need to keep track of legislative (and political) developments and understand what they might mean for business. At Osborne Clarke, our regulatory experts are helping businesses to understand both the risks and opportunities that Brexit may present for them, and ensure they are best prepared and remain up-to-date.