brexit: how to navigate through uncertainty and be ready ... · **four freedoms – freedom of...

BREXIT: How to navigate through uncertainty and be ready for any scenarioMarch 2017

2© 2017 Deloitte Tax & Consulting

Contents

1. Brexit Scenarios: Exit & Implications 3

2. Key Issues/Challenges 8

3. Pragmatic Response 10

4. Competitive advantages to transfer business to Luxembourg 14

5. Deloitte Services & Approach 19

6. Deloitte Experience & Credentials 23

7. Your Contacts 26

8. Appendices 28


Brexit Scenarios: Exit & Implications


Financial Institutions will have to grapple with the unravelling uncertainty that influences their current business and the industry’s future.

• How will you confront the upcoming challenges?

• What will be the strategy to continue access the EU passport?

The people of the UK have voted to leave theEU. This has created significant uncertainty forFinancial Institutions in terms of:

• How will the UK exit the EU?• What is the timeline of the exit?• What are the key implications? • What future arrangements will banks and

licensed Fintech companies have to face?

Brexit has created significant business uncertainty and a potential change of the regulatory landscape for various Financial Institutions*

Key Challenges

People & SkillWith free movement of labour at risk of being revoked, FIs will not benefit from easy access to human resources. As human resources are known to make or break a company, the UK may be looped out of the best talent pools

RegulationsIn light of many EU directives currently being negotiated, important regulations such as PSD2 will possibly grind to a halt

PrivacyThe UK will probably need to negotiate new privacy/data protection and security terms with the EU as well as the US

Business ModelThe key impact on banks’ business model is the ability of a UK entity to serve EU clients and vice versa, the ability of an EU entity to serve UK clients (CRD IV and MiFID2)

Venture CapitalAccess to capital is vital to start-ups but negative tax incentives and regulatory restrictions may have an adverse impact

Access to Single MarketMember states, 508 Million people and a GDP of US$18.5 trillion may be out of reach once passporting and equivalence is annulled

EU member states

# Brexit # Banks & Fintech

*Definition of Financial Institutions (FIs) includes and is not limited to: traditional banks, online banks, licenced Fintechs, PIs, e-money, family offices, asset managers.


There is no single “Hard” or “Soft” Brexit…

There is a continuum of potential relationships between the UK and EU ranging from the “true Hard Brexit” to full EU membership

Impact on

Economy

Level of integration

Free Trade Agreements (WTO

membership)

Mutual Recognition Agreements – The Switzerland model

(EFTA)

Advanced Free Trade Agreement –The Canada model

• No access to the EU passporting regime

• No access to free trade area

• Bilateral trade agreements are required with the EU and non-EU countries, with a long negotiation timeframe

• UK retains free movement of goods, services, capital and people

• UK loses access to the passport regime

• UK could negotiate bilateral deals with the EU on a regulation-by-regulation basis

• Less access to the Single Market: e.g. no tariff-free access to all goods

• No agreement with EU on key sectors such as trade in services

• Pay a fee to Participate in EU programs

Med

ium

Low

Hig

h

Hig

hM

ediu

mLo

w

EU-UK relationship

typeHard BrexitSoft Brexit

Single Mkt & Customs Union –The Norway Model

(EEA)

• UK retains access to the Single Market and passport regime

• No bilateral trade agreements with EU members are required

• Must contribute to EU budget• Subject to the key obligations of

EU membership, including financial contributions


…and uncertainty is created by the exit model that the UK and EU will negotiate

* In this scenario, the UK will be able to negotiate provisions of bilateral agreements with the EU, but will have to meet EU standards to be able to benefit from access to the Single Market **four freedoms – freedom of movement of goods, services, labour and capital

Market Access

Access to the Single Market** and passporting

preserved

Access to the Single Market will be defined

through bilateral agreements

No access to the Single Market and

passporting. Authorization for

subsidiary required

The UK will have no formal influence over adoption of

EU regulation, but will have to implement it

The UK will have no formal influence over adoption of EU regulation, it may be able to pick and choose

which rules to implement* to achieve market access

The UK will be able to review existing rules and deviate from the EU legislation.

Deviation may make it more difficult to gain equivalence

Brexit effects will be somewhat muted as the UK would preserve most of the

features of the current regime

Contingency plans should particularly focus on short-

term operational implications to avoid

disruptions during transitional phase

The scope of operational and strategic changes will likely

include major decisions (such as relocation) and

associated costs

PlanningPotential exit model

Influence

3. Third country

2. Swiss model EFTA + bilateral

agreements

1. EEA*

Potential impact on FIs’ business

model

Huge Small

Exit scenarios have different implications for FIs’ structures and business models.


In particular the effects related to the Single Market will create a material impact on FIs’ services and their operating model

Depending on the outcome of the negotiations, if the UK leaves the EU, firms in the UK no longer benefit from ‘passporting’ regimes that are established under certain EU legislative acts

‘Passporting’ in Europe Under certain single market rules, firms that are

authorized in one member state can carry out their activities – provided that the relevant conditions are fulfilled – in any other EEA country

Firms can ‘passport’ in two ways – either by establishing a branch/agent or by providing cross-border services (Free provision of Services)

Directives that underpin UK’s access to the EU Single Market

• Capital Requirements Directive (CRD)• Solvency II Directive• Insurance Mediation Directive (IMD)• Markets in Financial Instruments

Directive (MiFID)• Undertaking Collective Investment Scheme

Directive (UCITS)• Payment Services Directive (PSD)• Second Electronic Money Directive• Alternative Investment Fund Managers

Directive (AIFMD)

• Firms established in the UK may need to get authorization from competent authorities in the EEA member states to access the EU market (e.g. set-up of subsidiaries to access passport)

• UK firms will have to comply with both UK and host country regulation if they want to carry out regulated activities in European countries

• EEA firms will need to become authorized by UK authorities in order to access the UK market

• Cross-border groups may have to restructure

UK entities could be impacted quite hard given the fact that the UK is a global

powerhouse of investment banking, for which passport is rather crucial compared

to other businesses such as private banking

Consequences of FIs losing the right to passport in the EEA

A fifth of bank revenue in the UK could be at risk if the passport is lost, which implies that around 20% of revenues are generated via passport*

*Source Open Europe Report 10/2016.


Key Issues & Challenges


No access to the Single Market & EU Passporting regime; hence in order to continue to serve EU market, a new entity (e.g. subsidiary) shall be set up in a continental EU country. This will require investment in terms of capital, staff and infrastructure

Uncertainty over Euro clearing

Drying up of future investments: ability to attract venture capital & seed funding

Expected less responsiveness from the FCA in getting approval for passporting

Availability of talent & experienced senior management Costs associated with attraction, retention & relocation of talent Additional costs and requirements to meet immigration criteria

Banks (wholesale & investment) Payment Institutions Fintech Asset Managers

Delegating portfolio management functions outside the EU: in the future, UK-based asset managers might be able to keep providing management services for funds domiciled within the EU/EEA

Sales prospective: changes to marketing strategies for UCITS & AIF funds

Maintain investor confidence

Change of domicile: re-domicile UCITS funds in order to continue to access the EU market, otherwise they will cease to be UCITS funds

Distribution model/network: establish a UCITS Manco in an EU country to continue to offer UCITS funds

Supervisory, legal fees and difference in the national definition of “marketing” too high for a small or medium-sized asset managers

Depending on the post-Brexit political agreements that are met, FIs will face several challenges, some of which are substantial

Source: Websites, Deloitte Analysis

Not exhaustiveoutline of the key issues

Business Model

& Operations

Regulations&

Tax

Human Resources

Tax implications at the level of Corporation tax (unclear whether there will be withholding tax on cash flows up when the UK is the holding company of EU subsidiaries) and indirect tax - VAT

UK regulation could diverge from that of the EU, adding cost & complexity. For instance, the UK may no longer need to implement Payment Service Directive II. Indeed, until the UK formally exits the EU and during the exit negotiations, EU legislation will continue to apply. A number of EU legislative acts that are currently being implemented, will enter into force before the estimated earliest date of exit (Q3 2018).

CRD IV does not allow for equivalence or meaningful third-party access

EU Privacy & data security laws require processing centers to be based in EU

Impact on the operating model due to the limited intervention of the UK in the discussions at EU level of the new rules for Fintech companies on how to set out information for potential investors


Pragmatic Response


11

Depending on the post-Brexit solution, legal entity set up and geographical footprint, there are a number of potential structural options FIs shall envisage

UK subsidiary or branch

Parent company

UK subsidiary or branch

Parent company

EEA subsidiary or branch

Current structure Potential worst case scenario(loss of passport – UK as 3rd country)

Access to EEA* clients

• Most global banks have operations in the UK, either through operating companies or via branches

• For some products (e.g. derivatives, UCITS etc.) the UK entity is the EEA hub that allows the bank to access EEA clients and markets

• In some cases, EEA non-UK banks access EEA clients via their entity in the UK

• Banks may lose their ability to serve EEA clients from their UK entity for some products/clients

• Also, the repatriation of particular businesses (e.g. business conducted in EUR) may be incentivized by EU authorities

• As a consequence, banks may need to transfer part of their UK based business to an existing or new EU vehicle

• Review their structure to be able to continue to serve existing clients in EEA

• The degree of change required depends on the current European footprint, their specific set of business and the availability of operating entities/subsidiaries in the UK and the rest of the EU

*European Economic Area means the current 28 EU countries and Iceland, Liechtenstein and Norway


Setting up a presence in/ transfer impacted business toLuxembourg will allow UK companies to continue to offerfinancial services across borders in 31 countries, especiallyin case Hard Brexit happens

Sweden

Finland

France

Spain

Poland

Norway

Italy

Germany

Romania

UK

Latvia

Austria

Ireland

Bulgaria

Hungary

Greece

Lithuania

Portugal

Estonia

Croatia

SlovakiaCzech Republic

Belgium

Liechtenstein

Denmark

Netherlands

Malta

Luxembourg

Switzerland

Luxembourg

Cyprus

Slovenia

Setting up a light presence in continental Europe and/or transfer business from UK entity would represent a contingency plan, independently from the final scenario that will be negotiated between the UK and the EU

• The EEA passport obviates the need to obtain separate authorizations from other member states

• Minimum executive substance is required in Luxembourg

• The business-minded regulator is open to IT and Operations outsourcing options

• Depending on the type of set-up chosen, an authorization process* could be required

FIs shall seek to establish/run parallel entities in order toaccess both the EU and UK markets: transfer business/ open anew, small unit in Luxembourg to serve continental EU clientsand, at the same time, keep – if applicable – the presence inthe UK.

*Additional details about the authorization process are provided in the Appendix


This dual presence in UK and EU will represent a pragmatic response to the current uncertain situation that Britain’s banks shall explore

Luxembourg subsidiarybusiness logic: The “Luxembourg subsidiary” will

offer services to EU- based clientsthrough a Luxembourg-basedsubsidiary that operates a pan-European branch network andwhich benefits from the EU freeprovision of services within theEEA

Regulated by CSSF

Illustrative

UK subsidiary business logic: The “UK subsidiary” will offer services

to UK-based clients through a UK-based subsidiary that operates a UKbranch network

Regulated by FSA

Ownership relationship

Subsidiary

Branch

EU member states

Relocation scenario

Lesson learnt from the Swiss caseAfter several years of discussion on full access to the EU market, Swiss banks mitigated their lack of pan-European access by setting up subsidiaries in Luxembourg and Frankfurt.The waiting approach is much more costly than the extra costs related to setting up a new entity in a continental EU country


Competitive advantages to transfer business to Luxembourg


Luxembourg has several competitive advantages to be selected as EU continental country to relocate activities from UK

• Brexit has created significant business uncertainty and a potential change of the regulatory landscape for banks: the final new setting will mainly depend on the exit model that UK and EU will negotiate.

• Although there is no single “hard” or “soft” Brexit, the effects and implications related to the Single Market will create a material impact on the services and operating model of banks.

• Indeed in case UK leaves the EU, firms in the UK no longer benefit from “passporting” rights under MIFID and CRD IV, which will bring to consequences such as restructuring of cross-border groups; need to get authorization for the competent authorities in the continental EU to access EU market.

An uncertain scene…

• Depending on the post-Brexit solution, legal entity set up and geographical footprint, there are a number of potential structural options Banks shall envisage.

• Transferring business in the continental Europe, and in particular in Luxembourg, would represent a contingency plan independently from the final scenario that will be negotiated between UK and EU.

• This dual presence in UK and EU will represent a pragmatic response to the current uncertain situation that Britain’s banks shall explore.

…brings looking for a

practical response to work in a

post-Brexit environment

The financial center of Luxembourg demonstrates to have selected competitive advantages and offers favourable conditions to create the suitable ecosystem for specific activities, such as, amongst others:

• treasury activity, thanks to the easy access to ECB funding;• post trading activity in the derivative transactions (see details in the next slide);• structuring, distribution and administration services of investment funds (see details in the next

slide), and• corporate finance product (see details in the next slide).

Additionally, thanks to the favorable approach to outsourcing, front office activities (e.g. Treasury, sales and trading, commercial and marketing) can be supported by existing teams in UK.

Luxembourg represents the natural

pick in EU to perform certain

activities.


Luxembourg offers the necessary means and experience to manage the post-trading activities of derivatives* as part of the custodian business

Focus | Opportunities related to Derivatives business

Trading Post-trading

• Margining requirements calculation (i.e. initial and variation margin) based on the daily price of the derivative and settlement

• Safekeeping and segregation of collateral

• Collateral valuation and re-use

• Initial margin segregation

• Reporting to authorized EU Trade Repository

As Sales Desk undertakes a regulated activity (i.e. execution of order with the client – arranging the deal as well as concluding the agreement directly with the client), in case it is done cross-border, there could be restrictions on the UK sales executing orders with EU domiciled clients. On the contrary in case of execution of orders with UK and non-EU domiciled clients, the activities can continue. For cross-border activity, this implies that the Sales Desk shall be relocated to an entity in the continental EU, while the trader can sit in London office, as passporting permission is not needed. In general, the same applies in case of dealing with derivatives on own account.

EMIR related implications – transactions with EU counterparties cannot be cleared and reported through non-EU authorised CCP and Trade Repository (TR). In case UK based CCP and TR are not recognised equivalent, Banks shall change their CCP and TR: ETD derivatives shall be centrally cleared via a CCP based in EU as well as ETD and OTC derivative transactions reported to a TR based in continental EU.

• Strong skills and experience in collateral management and high developed capital market infrastructures• In particular, in relation to collateral:

• Given the expertise and the presence of financial infrastructures, Luxembourg could become the liquidity hub of British banks, managing and safekeeping EUR denominated collateral and accessing T2S

• ICSD is present in Luxembourg as well as large amount of assets eligible for collateral• Close connection to Central Bank and other infrastructures (i.e. CSDs)

* both, centrally cleared (ETD) and bilateral transactions (OTC), according to the EMIR definition

Pri

mar

y ac

tivi

ties

Clearing

• Transactions management

• Calculation of the daily price of the derivative

ETD

OTC

• Client contacts Sale Desk to buy/sell a derivative (i.e. voice trading or trading platform)

• Sale Desk contacts the trader to request a price, which is provided to the client

• Once the client agrees with the price, the derivative is executed and booked

• Negotiation of the terms of a derivative between the 2 counterparties

• Definition and agreement of the ISDA contract

• Calculation of the daily price of the derivative

• n/a

Op

erat

ion

al

imp

lica

tion

sLu

x at

trac

tin

g

fact

ors

Indicative


Luxembourg as facilitator of cross border financing business between Europe and third countries

Focus | Opportunities related to Corporate Finance

Establish payment terms Deliver goods Settle on terms

• Agreement between an importer and exporter to the sale of a product at a future date and time

• The importer provides a bank with a copy of the financial agreement for review

• The import bank reviews the financial agreement and provides financials on behalf of the importer to a correspondent bank, which has established a relationship with the export bank

• Financing details are provided to the exported and the shipping is initiated

• A trusted third-party organization inspects the goods for alignment with the invoice

• Local customs agents within the export country inspect the goods on the country code

• The goods are transported from country A to country B

• Following inspection, the goods are delivered to the importer, which provides a receipt notification to the import bank

• Upon receiving notification, the import bank initiates the payment to the export bank through the correspondent bank

Pri

mar

y ac

tivi

ties

Operational implications

• Reallocate this activity in Luxembourg which will focus on the origination and booking of trade-related products with continental EU domiciliated clients.

• In case of business done in the UK with UK clients or UK subsidiaries of international clients, the impact of hard Brexit would be very limited.

Luxembourg attracting factors

• International / cross-border business culture

• Apply regulation without national specificities: sound basis for pan-European business

• Centre of Europe from geographical perspectives, with good connections

• Successful model developed by Chinese banks, which can be replicated

• Efficient “branching” process out of Luxembourg

Indicative


Luxembourg funds are the vehicle of choice for cross-border distribution

Focus | Opportunities related to Asset Management (AM) and fund industry

Marketing & Distribution

Asset Management

Transaction Processing

Administration, Custody & Risk Management

• Business and product development

• Sales

• Fund registration and notification

• Marketing material (i.e. factsheet production and diffusion

• Distributors oversight

• AML/KYC oversight

• Strategic AM (long-term asset allocation, currency and risk management)

• Operational AM (stock selection, decision making and implementation)

• Dealing (buying and selling investments; pre-trade broker liaison)

• Cash management (e.g. placing deposits, forex)

• Research (i.e. fundamental and technical economic and company an.)

• Transaction processing & settlement (deal admin and control, post-trade liaison with brokers and custodians)

• Stock lending (arranging and processing loans)

• Safe custody (security safe keeping and control)

• Fund admin. (i.e. NAV calculation, shareholder Register)

• Transfer Agent

• Accounting (i.e. provisions of valuations, client reports, tax reclaims, management information)

• Custody services (i.e. transaction settlement, check compliance with Prospectus, oversight of NAV calculation, safekeeping of assets)

• Risk monitoring and reporting, investment compliance; regulatory reporting; institutional investors reporting;

• Performance management (performance calculation and reports, attribution an of returns)

Pri

mar

y ac

tivi

ties

Op

. im

pl • Set-up of ManCo in EU or change of domicile of UCITS and AIFMD funds in order to continue to access and distribute to investors in EU

• UK based fund managers shall create UK funds for the UK market and EU funds for serving EU investors

• Outsourcing model: portfolio management functions of Luxembourg domiciliated companies shall be delegated to UK based managers

Lux

attr

acti

ng

fac

tors

• Luxembourg is the Europe’s largest fund domicile (one-third of European investment funds are domiciled in Luxembourg) and the world’ssecond largest fund centre after the US

• Its leading position as fund center is confirmed by the following figures:

• 80% of the top 30 asset Managers use Luxembourg as their primary EU platform for distribution

• Net assets under management of Lux inv funds at EUR 3,626 bn (Oct. 16); net sales at EUR 93,7 bn representing roughly 28% of allnet sales in European funds (sept. 16)

• Lux holds a 67% market share in terms of authorisations for cross-border distribution with funds distributed in over 70 countries

• Experience in the re-domiciliation process due to increased demand of regulated funds

• Various type of funds: AIF, UCITS and RAIF and it is a leading fund centre for Real Estate, Private Equity funds, onshore Hedge Fundsand Fund of Hedge Funds

Structuring

• Investment fund set-up (selection of suitable legal form of investment vehicle in light of the product, target investors, tax and regulatory aspects)

• ManCo set-up

• Documentation (e.g. application, prospects, etc.)

Indicative


Deloitte Services & Approach


20

Depending on the business and footprint of the FI, several factors will need to be taken into account to understand the extent, nature and scale of the BREXIT impact

First priority


Deloitte can help clients in navigating BREXIT uncertainties offering a full range of services

Short-term actions

• Assess implications on the client’s business and footprint performing:• BREXIT business simulations to explore different scenarios and their

impacts on the client’s markets, business model and strategies• Impact assessment combining both regulatory and business aspects

and risk and contingency planning• Strategy development and comparative countries analysis

• Set up a BREXIT task-force and PMO support to help ensure cross-business and functional activities are aligned, co-ordinated and interdependencies fully addressed, as well as guarantee timely report to the Executive Committee and the Board

Medium-term

actions

Once the planning is clearly defined, we can support the client in:

• Performing a comparative analysis to select the most appropriate structure, develop a business case and define market entry strategy

• Getting authorization from CSSF and any other host country regulator (if branches from Luxembourg are part of the plan)

• Implementing the authorized entities in Luxembourg and in any other EU country (in the case of branches from Luxembourg)


When it comes to setting up an entity in Luxembourg, Deloitte’s proven approach is structured to best meet the CSSF’s requirements

• Detailed description of products/ services offering

• Finalized business plan• Internal governance outline• Preliminary meeting with

CSSF• Validate business case • Business plan

• High-level business set-up• Policy blue-print (AML, Risk

Management, IT security, etc.)

• High-level implementation roadmap

• Facility shortlist• HR policy and recruitment• Organization of a preliminary

meeting with CSSF• Presentation material for

preliminary meeting with CSSF

• Finalized application file to submit to the regulator

• Third party systems provider list

• Operating handbooks• Risk management, compliance

and AML, IT security policies & procedures

• Organizational mapping• Reporting arrangements• Governance structure• Accounting set-up handbook• List of premises for office

Activities

Deliverables

• Refine/confirm strategy including business model and commercial strategy (i.e. products, activities/services and targeted clients)

• Draft an economic and regulatory business plan, including key financials, Opex and Capex, solvency and liquidity ratio calculation and scenario analysis

• Design governance structure and organization of the entity

• Design the IT infrastructure according to the entity’s regulatory and operating requirements

• Structure the application file• Contacts with the regulatory

authorities to collect first feedback about the project

• Define the high-level business set-up, incl. scenarios (in-house, outsourced, etc.)

• Confirm governance structure

• Draw-up overall organizational map(s) and HR needs for the new entity

• Develop policies and procedures (e.g. risk management, compliance, AML, etc.)

• Identify required IT security infrastructure

• Describe IT function, IT security policy and BCM/BCP policy

• Identify facility requirements and create shortlist of suitable premises

• Finalize the application file• Create high-level

implementation roadmap• File the application with the

CSSF

Step

• Conduct analysis of business market and identify opportunities for entry

• First contact with the local regulatory (i.e. CSSF)

• Organize and moderate strategy workshop

• Conduct analysis of market and identify opportunities for entry

• Review the client’s operating model

• Match operating model with identified market opportunities and provide recommendations for market entry

• Develop a business case

• Validated strategy • Business model documents• Market opportunity

assessment• Planning for application file

preparation• Feasibility study report• Expansion strategy report

to Europe for the Subsidiary

• Implement policies and procedures

• Elaborate detailed business needs specifications, processes and procedures,

• Fine-tune procedures• Test operational processes• Select third-party providers• Design SLAs with external

providers• Arrange facility furnishing

and servicing support

• Final version of policies and procedures

• SLA designs• Selection of profiles and

recruitment of employees• IT architecture and

infrastructure implementation

Application file preparation

Strategy validation Implementation

PMO, internal coordination and regulatory support

32

• Write operational handbook• Confirm organizational map• Refine internal governance

policies• Complete functional map with

identification of processes to be handled in-house vs. by third parties/group

• Write/ adapt detailed procedures covering: risk management, compliance, AML, accounting and operational activities

• Identify and select third party systems (e.g. expense management, HR & Payroll management, etc.)

• Initiate regulatory reporting/ financial configuration mapping

• Draft accounting function set-up and regulatory reporting activities (i.e. COREP, FINREP, BCL reports, etc.)

• Set up compliance framework• Design detailed

implementation roadmap• Fine-tune IT architecture

Phase 4

Source: Deloitte project experience

ImplementationDetailed design & Organizational Model

Application files preparation

Business plan & initial structuring

Feasibility study &Market entry strategy

Location Analysis & Structure Selection

• Location analysis

• Recommendation for most suitable structure based on legal, regulatory and operational requirements

1 Location Analysis & Structure selection

• Report summarizing the key outcomes of the analysis


Deloitte Experience & Credentials


Thanks to our local expertise and our global network…

Our local expertise

EMEA Private Banking Center of Excellence

EMEA Fintech Competence Center - GRID

EMEA Core Banking Competence Center

EMEA Investment Management Services Center of Excellence

EMEA AML Center of Excellence #1 globally in Consulting by Kennedy #1 globally in

Management Consulting by Kennedy

#1 globally in Business Consulting by Gartner

#1 globally in Business Consulting by IDC

#1 in European Management Consulting by Kennedy

Leader in EMEA in Business Consulting Services

Our global network


Description of most relevant Deloitte assistance FI type

• Feasibility study and strategy elaboration for theestablishment of a credit/payment/e-moneyinstitution in Luxembourg to serve the EU

• Preparation and submission of the application files tothe Luxembourg regulator

• Implementation of the structure and EU expansionstrategy design

• Coordination with local and host country authorities• Approval process and local implementation forexpansion strategy and European organization.

• Comparative country assessment• Selection of most suitable financial structure• Development of the market entry business case• Design and launch of branches and subsidiaries inLuxembourg

• Preparation and submission of the application file tothe CSSF in line with the regulatory process

• Implementation of the institution and assistance indeveloping the expansion strategy

• Design, approval process and launch of branches orusage of Free Provision of Services in otherEuropean countries from Luxembourg

• Coordination with local and host country authorities.

…Deloitte has significant experience in assisting various FIs in setting up their presence in Luxembourg and in the EU

HQ country of origin

Selected examples

Banks

Fintech & Tech firms

• Corporate banks with non-EU headquarter

• Private banks with EU and non-EU headquarter

• Professional of Financial Sector aiming at providing investment services (i.e. private portfolio managers, investment advisers, family offices, etc..)

• e-commerce company• ePayment institution• mPayment company• Cryptocurrency company


Your Contacts


Partner – Advisory & Consulting Banking Strategy & Regulatory Affairs+ 352 451 454 [email protected]

Marco Lichtfous

Your Contacts

Senior Manager - Advisory & Consulting Banking Strategy & Regulatory Affairs+352 451 452 [email protected]

Francesca MessiniPartner – Advisory & ConsultingEMEA FSI Risk Advisory Leader+ 352 451 452 [email protected]

Laurent Berliner


Appendices


Default option for Brexit is 2 years following notification by the UK to the European Council (unless all EU Member States agree to extend)

Nov/Dec 2016: Italian Referendum

Oct 2016: Rerun of Austrian Election

23rd Jun: EU Referendum

Mar 2017: Dutch Election

May 2017: French Presidential Election

Jun 2017: French Parliamentary Election

Exit negotiations

Oct 2017: German Election

March 2017: UK triggered the art 50 informing the European Council of its intention to leave the EU

May 2019: EU parliamentary elections

Potential extension will depend on the exit route and the speed of negotiations

End of Exit negotiationThe earliest date the UK can leave the EU (no consent required) unless an alternative agreement is required

Netherlands Slovakia Malta Estonia Bulgaria Austria

2016 – 2018 EU Presidencies

2017 2018 2019


© 2016 Deloitte LLP. Private and confidential.30

Until the UK formally exits the European Union and during the exit negotiations, EU legislation will continue to apply. There is no scope to legally adjust this below EU minimums. A number of EU legislative acts that are currently being implemented, will enter into force before the estimated earliest date of exit (Q3 2018).

2017 2018

3 July 2016 – Market Abuse Regulation (MAR)/ Market Abuse Directive (MAD) majority of rules applies

Q1 2018 –Insurance Distribution Directive (IDD) applies

Q2 2016 – Central Securities Depositories Regulation (CSDR) –phase-in implementation

Q3 2016 – Securities Financing Transactions Regulation (SFTR) –phase-in implementation

Q4 2016 – Packaged Retail and Insurance-Based Investment Products Regulation (PRIIPs) applies

Q1 2018 –Benchmarks Regulation applies

Q1 2018 –Markets in Financial Instruments Directive II/ Regulation (MiFID/MiFIR) applies

Q1 2018 –Payment Services Directive II (PSD II) applies

Q2 2018 –General Data Protection Regulation (GDPR) applies

The two year regulatory pipeline (2016-2018)

FRTB (Fundamental Review of the Trading Book)

2019

1/1/18IFRS 9


Luxembourg as EU’s financial center of choiceNatural pick for FIs after BREXIT


Several continental EU financial centers are under considerations for post-BREXIT migration of London business…

Paris

Frankfurt • Established center with 8 of the 10 largest

banks having subsidiaries here• Base of Deutsche Bourse and ECB• Significant availability of office spaces• Availability of talent and well educated

workforce• Strict labour laws which might represent a

constraint• High taxation

Amsterdam

Madrid

Not exhaustive

• Lowest cost of operations & rentals compared to other leadings financial centers

• Flexible labour laws • Focused on introducing tax breaks for financial

corporations• English speaking talent could be a challenge• Still not well recognized as a financial center

• Highly digitally connected and favorable for Clearing, Fintech & High Frequency Trading

• Availability of English speaking, talented & skilled workforce

• Lack of large corporations to service compared to other financial hubs

• High taxation• Toughest compensation caps on the financial

industry in the Eurozone• Cap on bunus

• Significantly large corporate client base• Availability of talent & skilled workforce• Lack of English speaking workforce• Strict labour laws which might represent a

constraint• High taxation, however, the authorities are

working to make taxes more favorable

• Significant player in fund administration• Home of back office services for many

international banks based in the UK• Lowest corporate taxes amongst all financial

hubs in Europe• Flexible labour laws • Large pool of English speaking & well educated

workforce • Lack of prime space in business districts• Geographically distant from the Eurozone

compared to other financial hubs

Dublin

Source: Deloitte analysis

• Positive factors• Potential constraints


…however Luxembourg represents the natural pick, thanks to its minimal barriers to establishing a financial services firm…

Important financial hub

Efficient IT infrastructure

EU initiative Horizon 2020 currently awarding €80 billion in funding for innovative companies over 7 years

Easy access to decision-makers

Customized start-up assistance and investment incentives Attractive business environment

Favorable taxation

EU’s lowest level of VAT

Wide network of double tax exemption treaties with more than 60 countries

3rd European country in terms of ease of paying taxes

20 Top-Tier data centres for about 50,000m2 of floor space

70,000 GBPS capacity ensuring fast and reliable internet connections through a large optical fibre network

30% of EU Tier IV datacenter capacity

Superior government accessibility & support

• Top 3 EU financial centre

• 1st EU country & 2nd globally with €3.5 trillion AuM

• N°1 cross-border insurance centre

• Home to more than 150 international banks

• The regulator CSSF is open to outsourcing, offshoring & near shoring

• Easy access to ECB Funding

Most competitive economy in the EU in 2015, and 6th worldwide Rated AAA with stable inflation rate, robust GDP and employment

Higher political stability index than neighbours and other financial centres

Competitive business costs and ease to set up a business

Lux government is easily accessible & willing to accommodate investor needs


… its offer of favorable conditions and ingredients facilitating the success of Banks business…

Easy access to subsidies & funding

Attractive business

environment

Government accessibility and

support

Central business location

Important financial hub

Favorable taxation

environment

Labor stability & skilled and

multilingual labor force

Efficient IT infrastructure

A dynamic ecosystem

• Local custom-made investment incentives

• EU initiative Horizon 2020 currently awarding €80 billion in funding for innovative companies, available over 7 years (2014 to 2020)

Strategic position at the heart of Europe:

• Fast and direct access to major European cities

• 100 million consumers within a 250km radius of Luxembourg

• 70% of EU Wealth within a 700 km radius of Luxembourg

• 80% of produced goods and services are intended for foreign markets• 3rd European country in terms of

ease of paying taxes• EU’s lowest level of VAT • Wide network of double tax

exemption treaties with more than 60 countries

• VAT representation: appointment of a third party in Luxembourg for carrying out the VAT formalities and pay the VAT due on his behalf

• 80% tax exemption on income derived from certain intellectual property rights

Leading European financial center in wealth management, investment funds and life insurance:

• First country in cross-border fund distribution

• First European country and second largest player in the world in terms of assets under management with €3.5 trillion

• 150 banks from more than 27 countries worldwide

Stable political environment with a reputation for pro-active and business-friendly legislation:• Most competitive economy in

the EU in 2015, and 6th worldwide

• Higher political stability index than neighboring countries and other financial centers

• Competitive business costs and ease to set up a business

• Investment and R&D incentives

• Easy access to decision-makers• Start-up assistance of up to €1 million

and customized support from Luxinnovation

• Facilitated interaction with government services through State web-portal (www.guichet.public.lu)


… as well as being the ideal gateway to serve the European continent, an aspect which attracts several types of firms

Leading European financial centerin banking, wealth management, investment funds and life insurance

Specific regulated frameworks enable leveraging the EU passport and enhance transparency and credibility

Supporting business environment with easy access to governmental entities, public and private funding as well as talent

1

2

3

Some firms* based in Luxembourg:

*Sample only


Luxembourg has developed the necessary infrastructure to support the financial business

An open, diverse and stable economic powerhouse, located in the heart of Europe. Home to state-of-the-art infrastructures and a sound macroeconomic infrastructure.

2,9%Growth in GDP

AAARating byS&PMoody’sFitch

2,586KM2

563 00044.9% foreigners

2,1%Employmentgrowth

Source: Luxembourg for Finance

Space

Automotive

Environment

Health

Material &Production

Logistics

Information & Communication

Technology

Shipping


Deloitte is a multidisciplinary service organization which is subject to certain regulatory and professional restrictions on the types of services we can provide to our clients, particularly wherean audit relationship exists, as independence issues and other conflicts of interest may arise. Any services we commit to deliver to you will comply fully with applicable restrictions.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, bymeans of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult aqualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL andeach of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about tolearn more about our global network of member firms.

Deloitte provides audit, consulting, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five FortuneGlobal 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights, and high-quality service toaddress clients’ most complex business challenges. To learn more about how Deloitte’s approximately 245,000 professionals make an impact that matters, please connect with us onFacebook, LinkedIn, or Twitter.

brexit: how to navigate through uncertainty and be ready ... · **four freedoms – freedom of...

Documents