Risk manager checklist – doing business after Brexit

 

Typhaine Beaupérin, CEO of FERMA says: “A hard Brexit/no deal scenario is in nobody’s interest and we expect the UK to use the agreed new extension to quickly break the national political impasse.

“The risk management community looks forward to further clarity and the removal of uncertainty as soon as possible to properly plan for the future.”

But even though many risk managers expect the UK to avoid ‘no deal’, Theresa May’s continued inability to get a deal passed in parliament means that businesses must plan for every eventuality.

Indeed, risk managers across the UK and Europe have been examining business models and preparing for various possibilities in including a hard Brexit crash out the EU.

Fortunately, Franky De Pril, Partner Global Trade at EY, has collaborated with FERMA to create a checklist to help businesses navigate a post-Brexit world.

He says: “No matter what the framework of the new relationship is, trade with the UK will become more complex than it has been within the framework of the EU. Diverging legislation and customs formalities will cost companies money and time.”

The checklist is designed to help the risk management community structure post-Brexit business plans, giving specific actions to plan for eventualities such as currency fluctuation or supply chain disruption.

The post-Brexit checklist

1. Relationships with UK companies

Likely impacts: FERMA says: “Brexit will trigger macroeconomic consequences that need to be taken into account by all EU 27 and British companies.”

“One of those consequences is likely to be a more volatile British pound. Increasing exchange rate fluctuations might impact your investments and those of your partners.”

Action for risk managers: Map your links with specific sectors, companies, production sites and business models.

2. Supply chain optimisation

Likely impacts: “All parties involved in a cross-channel supply chain will be impacted by Brexit and will face affected profit margins and more expensive products.”

Action for risk managers: De Pril says the most obvious place to start your analysis is by looking at the impact on your physical trade flows.

He explains: “Trade with the UK will no longer be intra-EU trade but will become import/export. Will you be able to get your goods into the UK or out of the UK?”

To move goods, FERMA points out that businesses will need an Economic Operator Registration and Identification (EORI) number.

But this is just the beginning and the association outlines a number of steps businesses can take:

• · Speak to suppliers, customers and transporters to assess whether they are ready for the post- Brexit reality. Can you and they cope with delayed deliveries? Can they manage customs clearance processes?
• · Find out whether the import/export of the goods concerned is subject to specific authorisations/licenses/registrations, such as dual use, REACH, steel, and so on.
• · Establish what role the UK plays in your supply chain with Ireland?
• · Ask if the incoterms you are currently using fit for purpose when the UK is no longer an EU Member State? Make sure they reflect reality.

Besides your physical flow of goods, your impact analysis should also include IT, sales, people, tax, data protection, etc.

FERMA says: “Carrying out such exercise will give a better understanding of exactly where Brexit will impact your business. This will help you in developing alternative solutions for your supply chain strategy.

“You can look for alternative routes to market to avoid heavily congested ports, for example.”

3. Review of contracts

Likely impacts: De Pril highlights the importance of having the right legal contracts in place.

Actions to take: Carefully screen your existing contracts, especially if they are governed by UK law or if disputes will be submitted to UK courts.

Consider whether you will be able to fulfil your contractual obligations after Brexit.

FERMA explains: “Think about price setting, delivery times, conformity, and so on. In many cases, Brexit will not be a sufficient reason to terminate or review the contract.”

4. Tax inventory

Likely impacts: FERMA says: “Many [commentators] expect the UK to enact an advantageous tax framework to attract businesses. That framework will no longer fall under the jurisdiction of the Court of Justice of the EU.

“Within the EU… there are some relevant directives that will no longer apply in the UK such as the Parent-Subsidiary Directive.

“The British VAT system will remain in place after Brexit. Nothing seems to be changing for intra-UK transactions.

“Nevertheless, the taxable base for VAT may increase with the applicable import duties. A postponed accounting regime will however be introduced, deferring import VAT to the VAT return.

“Depending on your sector, import duties at both sides of the Channel may have a significant impact. This will definitely be the case for some agricultural products… A possible future Free Trade Agreement might mitigate this impact.”

Actions to take: Do a proper tax analysis and scenario plan to see what the costs to your business might be. Work through the various options to see whether the current model will continue to be sustainable.

5. Data analytics to assess the risks and opportunities

 

De Pril suggests companies examine at the data that is already available within the company.

He says: “The ultimate landscape post Brexit is as yet unclear. Brexit data analytics are designed to model the impact of alternative scenarios to enable the business to assess the potential impact and disruption to its operations of possible Brexit outcomes.

“This is a powerful and efficient approach to navigate through the turbulent Brexit waters”