Brexit Breakfast BriefingCreating and Delivering your Brexit Programme

24TH APRIL 2018 | THE SKY GARDEN, LONDON

About FourthLineWho are we?FourthLine is an interim and permanent recruitment consultancy specialising in UK regulated sectors. We build high performing Risk,Compliance, and Regulatory Change teams for industry and consulting firms. FourthLine's effective resourcing solutions bridge the gap between an organisations Risk and Regulatory agenda and the related skill.

What recruitment services do we provide?• Interim Management and Contractor Solutions• Project Outsourcing (ConsultancyFirms)• Permanent Contingent• Permanent RetainedSearch

We recruit for the following industries• Financial Services• Consulting &Practice• Commerce &industry• Public Sector• Utilities &Energy• Retail• Pharmaceuticals

Our specialist recruitmentpractices• Regulatory Compliance &Consulting• Regulatory Change• Information & CyberSecurity

Our Speaker – Remi Adebonojo, FCMIOverview

• An Oliver Wyman Consulting trained regulatory change manager, with current and relevant experience in assistingfinancial institutions navigate the complex and ever changing regulatory environment. Experience covers a wide gambitof financial institutions, i.e. The FCA, Citigroup, ICAP, LCH Clearnet, Barclays Investment Bank, Legal & GeneralInvestment Management, Deutsche Bank, Scotiabank etc.

Highlight of Relevant Experience

• Scotiabank - Leading a team of regulatory experts to conduct business focused impact assessments across keyregulatory topics for the Regulatory Initiatives Group (RIG). Along with Programme delivery for the MiFID II InvestorProtection, covering 9 MiFID II subject areas along with other key regulatory initiatives.

• Deutsche Bank – Responsible for Impact assessment and Programme setup for Global Markets MiFID II InvestorProtection deliverables.

• Legal & General Investment Management - Handling the remediation of Solvency II internal and external clientreporting along with MiFID II and other regulation related deliverables.

• Barclays Investment Bank - Initiated the Investment Bank's MiFID II programme from inception, while also handlingBarclays Group MiFID II advocacy responses, implemented the governance structure, recruited the team and carriedthe programme through to the conclusion of impact assessment phase.

• LCH Clearnet - Major European Clearing House - EMIR Dodd Frank Authorisation Submissions Programme Manager.Ensuring EMIR compliance for the Listed Derivatives Business

• ICAP (Interdealer Broker) - MiFID Programme Manager. Responsible for delivery of the initial MiFID 1 Directive andlater brought back in to remediate a regulator driven S166 Skilled Person review programme

Qualifications

• MBA Strategic Management

• LLB Hons.

• MSP Certified Practitioner

• Prince II Certified Practitioner

• CISI - Chartered Institute of Securities &Investments:

Global Financial Compliance – Certified

Operational Risk Management – Certified

Risk in Financial Services – Certified

Investment Operations Certificate

Agenda• Aim of this Briefing• Regulatory Landscape

• Potential Impacts • Brexit Timeline• Why Start Now?

• Key Components• Brexit Planning• Resourcing for Success

• Conclusion

Aim of this briefing

What this briefing aims to do

• Focus on what Financial Services Firms need to do to ensure Brexit readiness, considering the current political uncertainty. While avoiding another resourcing shortage due to concentrated demand.

What this briefing does not aim to do

• Pontificate on whether voting Brexit was the right or wrong decision for the UK

Key points to understand

• Brexit is a political decision and not a regulator led nor business growth initiative, therefore immediate and short term financial benefits might not be currently identifiable.

• Political Uncertainty around the approach with negotiations between the UK and the EU in full swing, means that a lot of information is based on assumptions.

• Brexit Focus for now for every in-scope financial services organisation, considering the limited options, should be aiming at achievement of the best possible outcome, despite the lack of clear political or regulatory guidance.

Regulatory landscapeEU / UK Financial Services Importance

• EU / UK Co-dependency, at least one quarter of the total demand for UK financial services coming from the EU• Trading amounting to nearly £4bn of imports from the EU and to £23bn of exports from the UK into the EU• Clearing around 69% of Euro-denominated OTC exchange turnover is generated and cleared in the UK, followed by

France with 11% and Germany with 7%• Single market membership allows for the free movement of goods, services, labour and capital• EU/UK financial services interdependency lowers cost of trade within Europe• European Central Hub leads to a peculiar concentration of organisations, human resources, infrastructure, economies of

scale and provides international financial services firms with a common springboard into Europe

Passporting • Portability of financial services within EU, while removing financial sales and purchase barriers across EU borders.• Authorisation in one EU states allows for the conduct that of that service with clients through the establishment of an

EU branch without the requirement for further authorisations• Degree of passporting required to conduct the financial service in the EU will determine the severity of the impact

Coverage• Passporting and Mutual Recognition covers activities involving Banking, Insurance, Payments, Fund Management etc.

through eight main Single Market Directives

Potential impacts – Brexit scenariosThe government's approach to Brexit is still being negotiated, with a number of potential options being proposed. Some of those options are listed below: Potential Brexit Scenarios• Hard Brexit• Offshore Financial Centre (OFC)• Third Country Equivalence• Bespoke Free Trade Agreement • EEA Membership

The adjacent Heatmap try’s to capture the following:• Disruption to existing financial services model• Complexity of trade with Europe• Complexity of implementation

HardBrexit

Offshore Financial

Centre (OFC)

Third Country Equivalence

Bespoke Free Trade Agreement

Bespoke Free Trade Agreement

EEA Membership

High Impact

Medium Impact

Low Impact

* Please note this summary does not intend to determine whether any one of these option is the right or wrong option. A summary of these options and what they entail can be seen in Appendix 1

Potential impact – Brexit scenarios

Hard Brexit (No formal arrangements in place in relation to financial services)

• No Third Country passporting rights and highly limited access to the EU financial markets

• UK headquartered financial institutions operating via branches in EU Member States, would need to convert branches into subsidiaries and/or face additional regulatory requirements by the host regulator

• The reverse would apply to EU headquartered financial institutions seeking continued access to the UK markets.

• Firms might choose to relocate their European headquarters from the UK to another EU Member State and become authorised by the competent authority in that Member State in order to retain their passport, therefore retaining the benefits of operating across the EU from a single hub, therefore only having to comply with one set of EU rules

• Will still require a separate subsidiary for continued provision of financial services in the UK.

• Considered the most disruptive outcome of all our scenarios

Potential impact – Brexit scenarios

The EEA Membership Scenario (Soft Brexit)

• UK could become a member of the EEA, consisting of all EU Member States, and three non-EU Member States – Norway, Liechtenstein and Iceland.

• Such an option would pose limited disruption to firms, as the UK would largely retain access to the Single Market, and would therefore, maintain most of its economic and trading relations with the EU, including continued access to the passporting regime.

• Joining the EEA is also likely to entail the continuation of freedom of movement of labour between the UK and the EU, which means that financial services firms in the UK could continue to hire skilled labour from the EU without being subject to quotas or visa restrictions, and British employees could continue to be deployed for EU-based assignments.

• UK Financial Services would have to conform to EU regulations (and be deemed ‘equivalent’) with little influence over setting regulations, in order to retain passporting rights.

• As at April 2018, the UK government had taken this option off the table, however discussions were still underway re customs union membership etc.

Potential impact – Brexit scenarios

Bespoke - Free Trade Agreement (FTA) (Highly unlikely but the best option)

• A free trade agreement (FTA) that offers full passporting rights and equivalence for financial services

• A generous FTA that is negotiated between the EU and the UK with UK financial services firms being offered full passporting rights across the breadth of financial services, which means that firms would be able to provide services that are currently (or in the near future) covered within the scope of existing third country passport regimes, but also services that are not covered by these regimes (e.g. lending and deposit-taking, payments, access to market infrastructure etc).

• Provisions on the freedom of movement in FTAs varies but would generally include provisions that facilitate the temporary movement of people for specific business purposes.

• Such an agreement is also likely to be underpinned by the principles of regulatory equivalence and reciprocal access to UK markets.

• This option poses limited disruption to the current delivery of services, however currently seems highly unlikely. There are alternative models like the Swiss model, however that model is as a result of many years of ad-hoc negotiations and focuses on sectoral agreements

Potential impact – Brexit scenarios

Third Country Equivalence

• The European Commission may recognise that the regulatory or supervisory regime of certain non-EU countries is equivalent to the corresponding EU framework

• UK could be granted access to 3rd Country Equivalence regime where they exist

• These will be 3rd Country passports covering certain agreed services, i.e. MiFID II / MiFIR, AIFMD etc, however the UK will have to keep its regulations converged with EU regulations to an extent.

• Some cross border activities will be permissible without having to establish a branch in the EU as long as the 3rd country passport is registered with ESMA

• 3rd country passports are reciprocal and are lengthy applications which could require EU country applications and could easily be revoked based on technical grounds. The equivalence decision could be granted partially, for an indefinite timeline or a limited period.

• 3rd country equivalence does not currently cover core banking activities i.e. payments and deposit taking etc

• This option poses limited disruption to the current delivery of services, however currently seems highly unlikely

Potential impact – Brexit Scenario 3rd Country Decision Table

Potential impact – Brexit scenarios – 3rd Country Decision Table

Y= Covers full or partial equivalence or adequacy, not limited or limited intime

Footnotes(1) Transitional regime for India only valid for

reports on financial years starting before1/4/2016

(2) EMIR Equivalence of the US CCP regimelimited to the framework of the USCommodity Futures Trading Commission

(3) CRR equivalence of Japan's investment firms' regime limited to Type I Financial Instruments Business Operators

Potential impact – Brexit scenarios

Offshore Financial Centre (OFC)

• UK could minimise tax and regulatory costs as much as possible therefore attracting more third-country financial services, which could compensate for some of the losses related to Brexit in the financial sector.

• Issues relating to passporting and the access to the EU single market will still remain.

• Establishing an OFC would require so many changes in the regulatory and supervisory framework that the current ‘third-country regimes’ would not be available for the UK because of the lack of equivalence with the EU legal regime, therefore potentially disrupting any benefits gained.

• This option is also highly unlikely.

Brexit timelinePoint at which clarity will most likely be in

place on agreed approach

Today

2016 2017 2018 2019 2020 2021

UK Votes to leave the

EUJun 23, 2016

UK triggers Article 50

Mar 29, 2017

EU Leaders agree talks

can move to second phase

Dec 15, 2017

UK Leaves EU

Mar 29, 2019

Oct 2017 - Oct 2018Brexit negotiations between UK and EU

Jan 2018 - Oct 2018Draft Framework Agreement

Mar 2018 - Mar 2019Ratification of deal by EU member states, MEPs, national Parliaments

Mar 2019 - May 2021

Provisional (Post Brexit) transition period

• Regulatory Overlap: The Brexit timeline overlaps with concurrent regulatory reforms within the financial sector i.e. MiFID II remediation (2018), GDPR May 2018, BRRD & SRMR, UK Financial Services Banking Reform, CRD V, PSD 2, SFTR, Insurance Distribution Regulation etc.

• Critical Dependencies: The overlaps with these deliverables increase critical dependencies across differing complex programmes of work, increasing the risk of failure

• Resource Redeployment: With concurrent in-flight programmes, financial services organisations could potentially re-utilise the current pool of resources to ensure knowledge retention, transfer and governance re-usage

Why start now – transformational programmes

Planning for the worst case scenario• Uncertainty could last

till the very end: Being a political agenda based change, there is every likelihood that clarity might not be received till it is too late for implementation

Potential Cliff Edge EU exit• Risk of not being able

to do business post Brexit if not prepared

Regulatory congestion• The nature of the

requirements could mean everyone will be doing the similar activities, potentially leading to regulatory congestion and processing delay

Cross Industry Concentration• The cross industry

impact nature of Brexit could mean to the other industries leveraging experienced Financial Services resources leading to a reduction in the available resource pool

Transformational Programme timelines• Past Regulatory

initiatives have shown us that major transformational programmes require 2 to 3 years for implementation

Why start now – key activities

Identify your organisations Brexit

sensitivities, i.e. Risks, Opportunities and Threats based on

agreed assumptions / scenarios

Conduct a thorough due diligence on Risk,

Opportunities and Threats

Advisable to plan based on a worst case

scenario.

Agree approach i.e. ‘red flag’ issues

requiring immediate action and ‘amber

flag’ issues potentially requiring

action as the regulatory and

commercial landscape becomes

clearer,

Establish a system by which these issues are subsequently

reviewed and implemented

Key components – typical focus activitiesStrategic

Impact Assessment

Target Operating Model Design

Legal Entity Structure

Agreement

Authorisation

Regulatory Approval applications i.e. VOP,

Authorisation, Permissions etc

Branch transfer authorisations

Market Infrastructure

Applications, i.e. Clearing etc

Operational

Booking Model Rationalisation, Asset transfer / Branch Closures

New Technology Infrastructure Requirements

New Premises

HR. Employee Restructuring

Legal / Contractual

Client re-papering and outreaches

Supplier contract negotiations

Jurisdictional gap closures - Legal, Compliance, HR

Indicative – Brexit planning

2021

Today

Jan Jul 2018 Jul 2019 Jul 2020 Jul 2021

Jan 2017

Scenario based Impact

AssessmentFeb 2017 - Apr 2017

Agree Brexit response approach

Apr 2017 - Jun 2017

Design new Operating Model Jun 2017 - Oct 2017

Oct 2017 - Aug 2018Restructure Legal Entities

Oct 2017 - Oct 2018Regulatory and Licensing Approvals

Booking Model Review, Design and Implementation

Oct 2017 - Aug 2018

Processes Review, Design and Implementation

Oct 2017 - Aug 2018

Technology Review, Design and Implementation Mar 2018 - Nov 2018

Resourcing Review, Design and Implementation

Oct 2017 - Nov 2018

Client Management Activities Jun 2018 - Nov 2018

Mar 2019 - May 2021Brexit Potential Transition Period

*If Transition period is granted to 2021 as currently being discussed, this will provide further flexibility for programme delivery to move into 2021. However firms should remember lessons learned from the MiFID II and not put delivery on hold as a result of this ‘extension’

Resourcing for success• Brexit Programmes will require a number of key resources among which include the following

profiles and skill sets:

Project / Programme Managers, PMO officers

• Ability to conduct gap analysis on existing business models and overlay regulatory requirements, review existing legal entity structure, and the extent to which it will meet the future requirements of the business and where changes may be required.

• Design TOM’s and Identifying options for updating entity structure (e.g. converting an existing branch to a subsidiary, or establishing a new subsidiary).

Business Analysts

• Regulatory Change Delivery specialists, i.e. EMIR, MiFID II, AIFMD, UK Financial Services (Banking Reform Act) etc.

• Stakeholder management and general end to end programme/ Project design and delivery.

Legal and Compliance Specialists

• Contract negotiations, jurisdictional framework review.

Resourcing for success• Brexit Programmes will require a number of key resources among which include the following

profiles and skill sets:

• Agreeing process changes, booking models etc.

• Client re-papering.

• Running complex Client outreaches.

Operational Change Specialists

• Resource management and restructuring

HR Professionals

• Technology System Changes, Software Development

Technology Professionals

Conclusion

• There will be a lot of media speculation about the form Brexit will take, however non of it will be of significant consequence until the approach is agreed by the EU and UK legislative bodies

• There will never be an ideal time to start preparing your organisation for the impact of Brexit

• Financial Services organisations are already mid way through planning• Organisations have already started paying a premium for Brexit resources

Our clients

Contact Us• FourthLine is an interim and permanent recruitment consultancy specialising in UK regulated

sectors. We build high performing Audit, Risk, Compliance and Regulatory Change teams for industry and consulting firms. FourthLine's effective resourcing solutions bridge the gap between an organization’s Risk and Regulatory agenda and the related skill shortages.

• Email: enquiries@thefourthline.co.uk• Phone: 0203 800 1099

This document has been prepared for reference purposes only and is not a substitute for legal advice. Neither Fourthline nor Remi Adebonojo accept liability (including for negligence) to anyone in connection with this document. ©2018 Remi Adebonojo. All rights reserved

References

• EUR-LEX Access to European Union Law - https://eur-lex.europa.eu/eli/reg/2018/213/oj• Equivalence decisions overview table - https://ec.europa.eu/info/files/overview-table-equivalence-

decisions_en• From 'titanic success' to 'Mad Max’ - How language around Brexit changed

https://edition.cnn.com/2018/03/27/europe/brexit-language-change-intl/index.html• Key dates in Brexit process - https://www.reuters.com/article/us-britain-eu-timeline/key-dates-in-

brexit-process-idUSKBN1FM2H9• Planning for Brexit – Operational Impacts on wholesale and capital Markets in Europe -

https://www.afme.eu/globalassets/downloads/publications/afme-pwc-planning-for-brexit.pdf• Is the Swiss Model a Brexit Solution? - http://ukandeu.ac.uk/is-the-swiss-model-a-brexit-solution/• Implications of Brexit on EU Financial Services -

http://www.europarl.europa.eu/thinktank/en/document.html?reference=IPOL_STU(2017)602058

This document has been prepared for reference purposes only and is not a substitute for legal advice. Neither Fourthline nor Remi Adebonojo accept liability (including for negligence) to anyone in connection with this document. ©2018 Remi Adebonojo. All rights reserved