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How Brexit will impact global CIOs and IT services

Stephanie Overby | April 13, 2017
Global CIOs must begin planning now for the impact of Brexit on their IT services and outsourcing strategies.

The countdown to the United Kingdom’s separation from the European Union began in late March when U.K. prime minister Theresa May officially triggered the “Brexit.” With just less than two years until the U.K. is officially out of the EU, the date of departure is one of the few certainties regarding the situation. “No country has ever travelled this path, and there is no turning back,” says Craig Wright, managing director for business transformation and outsourcing advisory firm Pace Harmon.

But global CIOs cannot afford to simply wait and see what the post-Brexit world holds. They must begin preparing now for the impact of potential legal and regulatory changes on their IT services strategies.

“While all current U.K. laws and regulations will remain in place during the Brexit process, all IT service providers and recipients of such services must be highly vigilant and plan for significant restructuring of commercial agreements, regulatory compliance requirements, and the associated redefinitions of controls and audits,” Wright says.

Since the U.K. triggered Article 50 (the portion of the Lisbon treaty that enables a member of the EU to leave), the European Parliament has voted overwhelmingly to back a plan that calls for a three-phased negotiation:

  • Phase 1 will settle key questions regarding U.K.'s exit, such as the EU’s costs of U.K. exit, reciprocal rights of EU citizens, and issues regarding the one EU-U.K. land border between the Republic of Ireland and Northern Ireland.
  • Phase 2 will focus on the future trade agreement (FTA).
  • Phase 3 will define a possible transitional arrangement to cover a period of no longer than three years.

Once the U.K. and EU come to terms over the estimated $62 billion in costs the EU says will arise directly from Brexit, the trade talks will begin. “With 43 years of treaties and agreements covering thousands of topics to disposition, the future UK-EU trade deal is expected to be highly complex,” says Wright. “It will also be subject to last minute changes as it will require the approval of parliaments across Europe’s remaining 27 EU nations.”

 

The ‘Great Repeal Bill’

For its part, the British government has drafted its “Great Repeal Bill,” that would eradicate EU legal powers over the U.K. and automatically transform existing EU laws into British statute so that "the same rules will apply after exit day" as the day before. “The Great Repeal Bill has many implications for outsourced IT services agreements as the whole regulatory and legal basis in the UK is subject to change,” Wright says.

“In addition, there is concern that Prime Minister Theresa May might consider ‘no deal for Britain is better than a bad deal for Britain.’” If the UK leaves the EU without a trade agreement, it would operate under World Trade Organization (WTO) rules, requiring customs checks, tariffs and significant tax liabilities. “This scenario would result in chaos for British-based IT services as well as inhibiting cross-border service delivery to EU nations,” Wright says.

 

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