Brexit Effect

By Erika Winston

November 14, 2016


This summer the citizens of the United Kingdom dropped a bombshell on the global economy with their vote to leave the European Union. Though Brexit is still a couple of years away, its political and financial impact is already evident. In the months since the vote, the pound has reached its lowest exchange rate in more than 30 years, and the UK has lost its AAA credit rating from both S&P and Moody’s. The UK’s role as one of the largest trading powers in the world means that these events will have serious ramifications for the global economy. As international businesses scurry to determine their best courses of action, many are asking what role the legal community will play in this historic transformation.

U.S. law firms with UK offices serve a variety of clients, from British companies to American-based corporations with international interests. With so much uncertainty surrounding Brexit, many of these firms have found themselves inundated with inquiries about various regulatory changes and how they will impact specific areas of the law. Some firms have even created telephone hotlines for the sole purpose of answering Brexit-related questions.

Hogan Lovells, an international law firm with offices in Washington, D.C., and the UK has established what they call a “Brexit Hub” to keep their clients informed about the transition. Their available toolkit walks clients through the process of developing a responsive post-Brexit strategy. As the firm’s website states, “There are many unknowns. Acting quickly but proportionately is key to managing the risks and seizing the opportunities.”

Eve Howard, regional managing partner at Hogan Lovells, says these opportunities are not limited to corporations. “As the UK seeks to develop its independent trading relationships with markets around the world, particularly in the United States, that is going to create opportunities for those firms with strong global regulatory practices,” she says.

With locations around the world, Baker Botts LLP also maintains a legal presence in the UK. Mark Rowley is partner-in-charge of the firm’s London office. He also sees favorable opportunities for U.S. law firms.

“Two practice areas are expected to be significantly hit,” Rowley states. “They are real estate and capital markets. U.S. firms have less exposure [in these areas] than British firms and we see an opportunity.”

The economic implications of Brexit are already apparent within Britain’s legal community as British law practices are considering minimizing their staffs or closing their doors all together. According to Rowley, U.S. firms will take advantage of this opportunity by picking up talent from UK firms.

The legislative and regulatory reforms that may accompany Brexit are extensive. Significant portions of current British legislation are intertwined with European Union law. The coming separation will allow the British Parliament to act free of EU legal constraints, which will likely lead to an abundance of new laws and regulations from Westminster. Any new laws will require explanation, and Howard says that some firms are better positioned to handle these responsibilities than others. “Firms with a genuine U.S. and pan-European capability such as Hogan Lovells will be in a much stronger position to advise on Brexit-related issues than those that don’t [have this capability].”

Many corporations remain in a state of inaction while they consider the possible ramifications of Brexit for their financial well-being. “We are in a period of uncertainty that businesses don’t like,” explains Rowley, “which leads to business’ resistance in decision making.” 

This lack of action is helping to fuel the current devaluation of the pound. But even with these concerns, Rowley seems confident in the UK’s ability to sustain its global presence. “London will continue to be a prominent financial center. U.S. firms have an opportunity to realize more profit and potentially offer greater remuneration for partners,” he says.

While Brexit’s potential impact on U.S. law firms appears positive, Howard does offer a word of caution. “U.S. firms that have focused just on the UK market without a meaningful presence elsewhere in the EU, particularly Brussels, may need to invest in other European markets, including Germany, and develop their presence there to capture work that moves from the UK to the EU.”

Rowley gives these parting words about Brexit: “The most important thing to reinforce is that nothing has really happened yet. Until Article 50 is triggered, nothing has changed. The UK remains a member of the EU and will continue to remain a member for at least two years. For global firms working on an international landscape, business is continuing as usual.”

Erika Winston, JD, MPP is a writer, educator, and freelance contributor to Washington Lawyer. She spends her spare time yelling at political pundits through the television.