Brexit, Brexit, Brexit is about all we seem to hear in the news at the moment. The uncertainty of not knowing how this will end in 2 years is evidently reflected in initial market volatility, which is absorbing much of the current attention, together with a good deal of political posturing and recrimination. That aside, how should the UK’s Financial Institutions be preparing and how can they best capture, assess and manage both the risks and the potential opportunities that Brexit brings? In the last few days, Deloitte, have written a useful guide on the actions that Financial Services organisations should take, if not already doing so.
We have summarised these below and considered the steps that people might take within their risk management system to ensure that both Brexit risks and opportunities are monitored and business decisions improved.
- Regulator readiness
The increased volatility in financial markets, as seen by the dramatic devaluation of equities and bank shares as well as Sterling, will no doubt heighten the demands of regulatory supervisors. The challenge of managing these market impacts will be significant and the regulators will expect to see that the lessons from previous volatile events have been learnt. This could mean an increase in both the frequency and depth of reporting. Firms will be expected to be able to respond quickly to calm customer anxiety.
- Revisit scenario analysis and contingency planning
This needs to consider all potential future relationships that the UK may have within the EU and the effects they might have on customers, such as a customer deciding to relocate to another EU country and the implications this has on how the customer is managed. Firms need to keep aligned with customers as their plans change and develop.
- Ensure communications are consistent to all stakeholders
Firms should ensure that their position is clear and accessible to prevent the market from making incorrect assumptions.
- Review how future strategies might be affected
This needs to examine, positively or negatively, how strategy will influenced and modified by the terms of the UK’s exit from the EU. Both opportunities and risks should be considered. For example, the potential opportunity to capture market share from a competitor that has repositioned themselves and left a gap in the market. Likewise, there maybe significant risks, such as changes to EU passporting rules.
- Start relocation planning early
Develop detailed plans for any potential relocation, for example establishing a new regulated subsidiary in another EU Member State. You may need to bear in mind that a large number of other firms may be considering this option, in which case there could be a bottleneck when it comes to regulatory approval.
Using your ERM to Manage Brexit risks and opportunities
In the volatile and dynamic environment that may well exist for a few years. it would be useful to be able to easily monitor those risks that are closely aligned with Brexit. Moreover, the ability to create new specific risks such as “relocation”. However, opportunities will also be connected with Brexit. So an ability to compare risks and opportunities for specific situations and be able to monitor how these change with every twist and turn would be useful. Using Xactium Risk Manager as an example:
Add a “Brexit Risk” flag to a risk
or an opportunity,
Then create a simple workflow to notify different members of the “Brexit risk team”
This should then enable you to create Brexit risk registers:
And add a new analysis to the existing dashboards
Also consider creating a set KRI’s to monitor “worst outcome” that could measure areas such as the negative impact of new business or loss of key staff.
Clearly the next two years are going to be both challenging and potentially rewarding. A flexible risk system that can easily adapt to change as well as capture both opportuities and risks will be a huge asset in supporting better business decisions.