Worst-case scenario for financial products and software: The Johnson Brexit

21 August 2019

The hard Brexit of the new Premier Boris Johnson will deal the financial industry a blow

Frankfurt a.M./Magdeburg, 20 August 2019 – London is still considered as Europe’s largest financial centre; 90 percent of all derivatives traded in euros are transacted in the British capital. This can change with the new Prime Minister Boris Johnson, who ranks as Brexit hardliner. “With Brexit, the European financial industry is facing the biggest transformation since the construction of the EU. The strategic, fiscal, legal and operative consequences for financial service providers such as banks, brokers, dealers and insurances are tremendous – the faster the Brexit is now carried out, the more fatal are the consequences,” says René Lemme from valantic. The worldwide operating company develops and provides solutions for financial institutions and the banking industry. The constantly changing conditions of the EU exit are also an issue for the software industry: Dozens of software solutions, e.g. ERP systems, CRM applications or logistical systems with customs tariff lists, need to be adjusted on time.

Automation of financial processes

Thanks to the “EU passporting”, financial service providers were as yet not obliged to establish independent units in other member states to provide their products and services. In future, however, the frontier between the United Kingdom and the EU is a red line for hitherto applicable licenses. British and Northern Irish companies are then seen as third-country providers, vice versa financial service providers from the EU selling their products on the island. “A compensation can only be effected by founding a national subsidiary company which would in future be regulated by the British supervisory authority. In addition, interventions to be implemented in finance software for derivatives trading are conceivable in order to realise the new regulations,” adds René Lemme. Products like valantic’s iQderivatives and iQbonds have long been standard in the financial industry and are used by major banks for automating the financial processes.

Johnson’s Brexit and Switzerland

The Brexit also causes tensions at the exchanges: In London, the simmering dispute about the EU recognition of the Swiss Exchange is meanwhile closely monitored and is considered as pattern for future recognition of exchanges outside the European group of countries in the EU. An unregulated EU exit would scrutinize the recognition of British stock exchanges by the EU. If, in October, the United Kingdom left the EU with a ratified contract, there would be a transition period during which initially no changes are made at the existing EU pass model. With Boris Johnson and the unexpected event that the British Parliament approves, the hard Brexit is more and more likely to occur and would severely affect the financial industry. For software providers like valantic, it means to install numerous updates to be able to act as dynamic as British politics.
 

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