UK in turmoil as country votes to leave EU

The UK today headed into unknown territory after the country voted to leave the European Union.

The results of the historic referendum on Britain’s membership of the EU which saw 51.9% of voters opt to abandon membership had huge and immediate implications.

Prime Minister David Cameron, who led the campaign for Britain to remain in the EU, resigned as the FTSE100 and other stock markets around the world dropped sharply in response to the outcome of the vote.

The value of sterling also plummeted against a range of currencies – falling to its lowest levels for more than 30 years.

The result will have enormous ramifications for businesses and also risk professionals not only in the UK but also across Europe and around the world.

Not all the consequences will be immediate and many will be complicated and difficult to quantify.

Many insurers and brokers have based their headquarters in the UK to take advantage of the “passporting” system which allows them to operate across the EU without restriction.

They will now have to consider relocating to another EU country or await the outcome of the UK’s EU “divorce” negotiations to ensure they can operate in member countries.

Talks to extricate the UK from the EU will take a minimum of two years and most likely considerably longer, particularly from a regulatory perspective.

Responding to the outcome of the referendum, Airmic technical director Julia Graham said: “Following the result of the EU referendum, the UK now enters the period for negotiating an exit from the European Union outlined in the Lisbon treaty - although the timeline for negotiating a new arrangement with the EU remains to be agreed.

“Before the referendum, the CBI indicated that only 50% of FTSE companies had made contingency plans for an exit vote and that there was a significant variance in levels of preparedness between sectors, with financial services well advanced and other sectors with some way still to go.

“The definition of risk typically used by organisations of ‘the effect of uncertainty on objectives’, recognises organisations often have to deal with risks they have little knowledge of by way of hard fact – Brexit is no exception.

“The Financial Reporting Council (FRC) define a ‘principal risk’ as a ‘risk or combination of risks that can seriously affect the performance, future prospects or reputation of the entity. These should include those risks that would threaten its business model, future performance, solvency or liquidity’. Had this not already been the case before today’s momentous referendum result, the risks associated with Brexit must now surely feature on the list of principal risks for most organisations.

“A priority for organisations today is the creation or refinement of internal and external Brexit communications plans and the clear allocation of responsibilities for managing these.

“As with any risk that might affect the whole organisation, Brexit is an enterprise risk and the potential impact should be broken down by considering different areas of the business and the relevant risks including people, sales, regulation, law, finance, information, technology and insurance.”

Brussels-based Ferma president Jo Willaert said: “Our companies have been considering the possible implications of a UK departure from the EU since the referendum was announced, along with all the other external factors that can have an impact on the way we do business.

“We incorporate them into our enterprise risk management. From a risk manager’s perspective, regulation is one of the clearest concerns. There are also likely to be implications for insurance, especially global programmes. ERM is a dynamic process and we will continue to take into account the implications of the UK’s decision.”