Signposting the Impact of Brexit on Law Firms
Whatever your opinions as to the merits or demerits of Brexit, there can be little doubt that the lack of certainty as to what is happening and will happen will be causing you more than just a little concern. Planning what to do; working out whether you are likely to be affected; analysing what are the best steps to take in order to preserve your work, your finances, your business and those of clients is an almost impossible task.
Whatever the outcome of the current Government deliberations, and possibly by the time you read this article decisions will have been made, it is clear that Brexit is going to have huge repercussions for all businesses in all sectors. As a law firm this is going to impact upon you in several ways. This will include the direct impact upon how and where you and your colleagues can practice, the rules and regulations to which you will be subject and the impact that this will all have upon your clients.
With (as at the time of writing) only two months to go until Britain potentially leaves the EU on 29th March, time is running out for firms to think about and plan for how the eventual outcome will impact upon their practice.
Brexit is Complex
That might sound like a statement of the obvious. However, the sheer complexity of the implications of Brexit mean that no one article could even begin to draw to together a coherent summary of those implications for any given firm. The permutations are too great and encompass the nature of the practice itself.
Do you, for example, have Registered European Lawyers working for the firm? Do you have an office in another EU country? Are your clients based in Europe? Do you regularly seek to enforce judgements in EU countries? Are you part of a larger firm with EU members? Are you part of a pan-European network? Do your clients do business in Europe? Are your clients facing redundancy because their employer is moving its business out of the UK? Do you have a client who receives maintenance from an EU citizen working abroad?
Even if none of these apply, what are the implications for your practice of EU inspired legislation? How will Brexit – especially a no deal Brexit – impact upon Data Protection, Equality, Human Rights legislation, health and safety?
The only realistic way for you, and those within your firm, to be able to identify those issues that affect you, and to take the steps necessary to address them, (and address them you must if you are to continue to practice in a way that takes account of the needs of clients, colleagues and regulatory requirements) is to go to the available guidance and form your own conclusions based on your own circumstances. However, simply knowing where that guidance is to be found and what issues need consideration is a task in itself.
To assist you in this, therefore, we are this month highlighting some of the information and guidance that you can use to draw those necessary conclusions. Inevitably the list will not be complete – if only because there will be guidance that will be published after this article or because there will be guidance that relates to a particular niche requirement that your firm, or its clients, has. We hope, however, that what follows will at least give you some ideas as to where to go for further guidance.
Before looking at what else they have published, it is worth making the point that the rules, as currently constituted, do require that firms give thought to the impact of Brexit upon the firm and its clients and take steps to modify their practices according.
Thus, the Principles[ii] require that you make yourself aware of the impact of Brexit in so far that they require you to “act in the best interests of each client”, “provide a proper standard of service to your clients”, “comply with your legal and regulatory obligations” and “run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles”.
So far as the Code of Conduct is concerned, Outcome O(1.2) requires that “you provide services to your clients in a manner which protects their interests in their matter” and that it “takes account of your clients’ needs” (Outcome O(1.5)). Unless you understand the impact, if any, that Brexit may have upon those clients you will not be able to address these Outcomes.[iii]
There are a number of provisions in Chapter 7 (Management of Your Business)[iv] that are likely to have Brexit implications. Outcome O(7.2) provides that “you have effective systems and controls in place to achieve and comply with all the Principles, rules and outcomes and other requirements of the Handbook, where applicable;” which would necessarily include systems and controls to deal with the potential impact of Brexit upon your firm, whilst Outcome O(7.3) requires that “you identify, monitor and manage risks to compliance with all the Principles, rules and outcomes and other requirements of the Handbook, if applicable to you, and take steps to address issues identified;” which risks would, in all probability, include the risks associated with Brexit. Outcome O(7.4) requires that you monitor “the financial stability of your firm and risks to money and assets entrusted to you by clients and others” – both of which could be affected by Brexit – whilst Outcome O (7.11) requires that “you identify, monitor and manage the compliance of your overseas practices with the SRA Overseas Rules;”.
Looking at more specific Brexit related issues, the SRA has so far produced two specific pieces of guidance to firms.
The first of these is Ethics Guidance on the “Government’s Technical Notice on the impact of a ‘no deal’ EU exit scenario on EU lawyers practising in the UK”[v]. First published on 12 October 2018 and then updated on 28 December 2018, this is intended to explain some of the implications of a ‘no-deal’ EU exit, particularly in relation to how it will affect Registered European Lawyers and the firms in which they work. It is in response to guidance published by the Government “Providing services including those of a qualified professional if there’s no Brexit deal”[vi], of which the section dealing with the Lawyers’ Establishment Directive and the Lawyers’ Services Directive[vii] is most relevant.
The second piece of guidance from the SRA Professional Ethics team is the “Guidance note on the impact on exempt European lawyers of the Government’s Statutory Instrument on the basis of a ‘no deal’ EU exit scenario”[viii] which addresses some of the implications of a ‘no-deal’ EU exit on exempt European lawyers and firms they are involved in.
So far, no further specific guidance has been produced.
The SRA has, however, published a consultation (which ended on 10 January 2019) entitled “Exemptions for qualified lawyers from outside the UK from the Qualified Lawyers Transfer Scheme in the event of a no-deal Brexit”[ix] which seeks views on the best way to approach the issue of those qualified lawyers from outside of the UK.
That guidance covers the potential effects on law firms of a no-deal Brexit in relation to:
- Civil and commercial cooperation
- Data protection
- Family law
- Providing legal services in the EU
- Civil and Commercial Cooperation[x] looks at the loss of several civil judicial co-operation mechanisms such as Brussels I Regulation, the Lugano Convention, Insolvency Regulation and other civil co-operation mechanisms including the Motor Insurance Directive. It underlines the steps solicitors should consider taking to prepare their practice for such an eventuality and draws attention to the fact that it is unlikely that Britain will be able to fall back on pre-EU agreements since these will not have been applied by those countries that have entered the EU since Britain joined – for example the Czech Republic, Estonia, Hungary and Poland. Thus, firms will need to consider the situation as it applies to the national law of each state – which obviously varies from jurisdiction to jurisdiction.
- Data protection[xi] considers “the implications of lawful transfers of EU personal data in the UK without an adequacy decision. In particular, we consider Binding Corporate Rules (BCRs), Standard Contractual Clauses (SCCs), certification and codes of conduct, and derogations.” In particular it advises that solicitors should “review the data flows and transfer mechanisms in their firms to make sure there will be no breach in their data operations if there is a no-deal Brexit. This includes transfers of personal data from the EU to the UK and onward transfers of that data from the UK to third countries (in particular where contracts include clauses where transfer of data outside of the EU is prohibited).” It also suggests, inter alia, that solicitors should “review which of the safeguards described in the guidance is best suited to the needs of their firm (SCCs, BCRs, etc).”
- The Family Law[xii] guidance considers the implications for family lawyers of the loss of the Brussels II bis Regulation, Maintenance Regulation, Lugano Convention and 2007 Hague Convention on International Recovery of Child Support and Other Forms of Family Maintenance and the Protocol on the Law Applicable to Maintenance Obligations.
- The fourth and (currently) final guidance article is entitled “Providing Legal Services in the EU”[xiii] and covers how firms will continue following the loss of the Lawyers Establishment Directive, Lawyers Services Directive and Mutual Recognition of Professional Qualifications Directive and the impact of a no-deal Brexit on rights of audience and legal professional privilege.
The Law Society have also produced a paper entitled “Brexit options for a future UK/EU dispute settlement mechanism”[xiv] which outlines its views on the building blocks necessary for having a fair, transparent and accessible mechanism for the resolution of disputes between the EU and the UK after the UK leaves the EU.
Back in 2017, the Law Society published a paper entitled “Brexit and the Law”[xv] which looked at the impact of Brexit on legal services and the justice system and was intended to help inform the negotiations as Britain prepared to leave the EU.
The Law Society also published their response[xvi] to the SRA consultation “Exemptions for qualified lawyers from outside the UK from the Qualified Lawyers Transfer Scheme in the event of a no-deal Brexit”
One final note in this section. The law Society state on their web site that they have prepared what they describe as an extensive overview of the national regulations that apply in each jurisdiction in the EU/EFTA. This can be requested by emailing firstname.lastname@example.org. Also, see below as to the report of the APPG on Legal and Constitutional Affairs.
- “EU lawyers in the UK – Practice rights under the draft Withdrawal Agreement and Q&A”[xvii] which considers the post Brexit for those European lawyers practising in the UK, and in particular outlines how the current UK framework of legal services operates in different UK jurisdictions.
- “UK lawyers and their practice rights in the EU in the context of Brexit Q&A”[xviii] which is aimed at UK legal practitioners providing legal services on a temporary and / or permanent basis in one or more EU member states. It describes the current state of play regarding lawyers’ practice rights under the Draft Withdrawal Agreement (DWA) and clarifies the CCBE’s understanding of the acquired rights as set out in the DWA as they apply to lawyers.
The CCBE web site also contains links to resources published by other Law Societies/Bar Councils.
- “Handling civil legal cases that involve EU countries if there’s no Brexit deal”[xix] – looks at how Brexit would change the rules for civil, commercial and family law cases involving EU countries, including:
- civil and commercial judicial cooperation
- cross-border insolvency cooperation
- family law cooperation
- “Providing services including those of a qualified professional if there’s no Brexit deal”[xx] – considers the requirements for how professional qualifications will be recognised and services will be regulated in the event of a no-deal Brexit
- “Structuring your business if there’s no Brexit deal”[xxi] – looks at how a no-deal Brexit would affect:
- cross border business operations, and
- European specific entities.
- Banking, insurance and other financial services if there’s no Brexit deal. There are a number of guides dealing with aspects of banking and financial services. These include:
- Banking, insurance and other financial services if there’s no Brexit deal: information for UK residents and businesses[xxii]
- Banking, insurance and other financial services if there’s no Brexit deal: information for people living in the EEA[xxiii]
- Banking, insurance and other financial services if there’s no Brexit deal: technical notice on financial services regulatory framework[xxiv]
- “VAT for businesses if there’s no Brexit deal”[xxv] – looks at the implications for VAT rules for goods and services traded between the UK and EU member states and gives information for businesses to take into consideration.
- “Data protection if there’s no Brexit deal”[xxvi] – looks at how the rules governing data protection would change, including:
- sharing personal data collected by EU organisations with UK organisations
- sharing personal data collected by UK organisations with EU organisations
- “Consumer rights if there’s no Brexit deal”[xxvii] – considers how a no-deal Brexit would affect a variety of consumer rights.
- “Workplace rights if there’s no Brexit deal”[xxviii] – how rights in the workplace could be affected.
- “The Future Relationship between the UK and the EU following the UK’s withdrawal from the EU in the field of family law”[xxix] – a study which explores the possible legal scenarios of judicial cooperation between the EU and the UK at both the stage of the withdrawal and of the future relationship in the area of family law, covering the developments up until 5 October 2018. It assesses the advantages and disadvantages of the various options for what should happen to family law cooperation after Brexit in terms of legal certainty, effectiveness and coherence. It also reflects on the possible impact of the departure of the UK from the EU on the further development of EU family law and offers some policy recommendations on the topics under examination.
- “The implications of the United Kingdom’s withdrawal from the European Union for the Area of Freedom, Security and Justice”[xxx]– a study which appraises the implications of the United Kingdom’s withdrawal from the European Union for the Area of Freedom, Security and Justice and protection of personal data for law enforcement purposes. It maps the various policy areas in which the UK is currently participating and analyses the requirements for the disentanglement of the UK from them, as well as the prerequisites for possible UK participation in AFSJ policies after withdrawal. Furthermore, it provides an assessment of the political and operational impact of Brexit for the EU in the Area of Freedom, Security and Justice.
- “The future EU-UK relationship: options in the field of the protection of personal data for general processing activities and for processing for law enforcement purposes”[xxxi] – a study examining the available mechanisms for personal data transfers between the EU and the UK after Brexit.
(c) The Bar Council
“The Brexit Papers” a series of articles looking at a range of Brexit related issues. Currently these deal with:
- Brexit Paper 1 – Legal Services[xxxv]
- Brexit Paper 2 – International Arbitration[xxxvi]
- Brexit Paper 3 – Financial Services[xxxvii]
- Brexit Paper 4 – Civil Jurisdiction and Judgments[xxxviii]
- Brexit Paper 5 – Criminal Justice[xxxix]
- Brexit Paper 6 – Family Law[xl]
- Brexit Paper 7 – Immigration[xli]
- Brexit Paper 8 – Insolvency and Restructuring[xlii]
- Brexit Paper 9 – CJEU Jurisprudence[xliii]
- Brexit Paper 10 – Dispute Resolution[xliv]
- Brexit Paper 11 – Employment Law[xlv]
- Brexit Paper 12 – Consumer Law[xlvi]
- Brexit Paper 13 – Traffic Accidents[xlvii]
- Brexit Paper 14 – Technical Regulations and Product Standards[xlviii]
- Brexit Paper 15 – Acquired Rights[xlix]
- Brexit Paper 16 – Intellectual Property[l]
- Brexit Paper 17 – Competition Law[li]
- Brexit Paper 18 – Tax Law[lii]
- Brexit Paper 19 – Public Procurement[liii]
- Brexit Paper 20 – Impact of ‘No Deal’[liv]
- Brexit Paper 21 – WTO[lv]
- Brexit Paper 22 – Environmental Law[lvi]
- Brexit Paper 23 – Fisheries[lvii]
- Brexit Paper 24 – Agriculture[lviii]
- Brexit Paper 25 – Internal Market and Customs Union[lix]
- Brexit Paper 26 – Mutual Recognition[lx]
- Brexit Paper 27 – Human Rights[lxi]
- Brexit Paper 28 – Environmental Law & Regulation[lxii]
To summarise, therefore, the sheer complexity of Brexit means that there is no simple way in which the implications of it can be predicted in such a way as to apply to every law firm.
The organisation The European Law Monitor estimates that there are over 18,000 EU Acts relating to UK law with nearly 1,000 directives[lxiv]. With firms around the country representing every facet of private, public and business life it is almost inevitable that there will be at least one firm that needs to acquaint itself with the changes in relation to each and every one of those Acts and directives.
What firms need to do is to analyse their practices and work out where there is likely to be a Brexit-related effect upon them. That might be in relation to the people they employ, the jurisdictions in which they practice, the areas of law they deal with, the clients they represent, the organisation of which they are a member, the overseas law firms with whom they work closely, the data they use, the services they purchase – indeed it could be any element of their practice.
At the end of the day, only the practice itself will know what is relevant – and if any are relevant, then the necessary steps will need to be taken.