Focus on…Brexit

Legal regulators sitting in other parts of the world might be forgiven for thinking that ‘Brexit’, the decision by the UK to leave the European Union, is of general geopolitical and economic interest but has little direct relevance to their work. This is not necessarily the case. The UK legal services economy, which is estimated to account for around 20% of the global legal economy, is highly dependent on the European Union. If the UK’s departure from the EU leads to a downturn in the UK legal economy, as many think it must, this will have ripple effects, both positive and negative for legal markets elsewhere.

Some jurisdictions, like Australia and New Zealand, will find that Brexit could well mean fewer training opportunities in the UK for their young lawyers.  Others, like Ireland, France and Germany, may benefit from the displacement of activity from the UK to the rest of the EU as lawyers seek to retain access to the European Single Market. And law firms from third countries, notably the United States, who use their regulated status with the Solicitors Regulation Authority to establish a branch network in the EU will need to restructure to retain the level of European access they currently enjoy.

At present the UK is in the process of negotiating the terms of its exit from the EU. This process began on 29 March 2017 when the UK formally notified its intention to leave the Union. Under the terms of the Treaty on the European Union (also known as the Lisbon Treaty), the UK and the EU have two years in which to determine the arrangements governing the UK’s withdrawal, which will be influenced by the shape of any future relationship. At this stage there are five possible scenarios for the future:

  • The talks collapse before the end of the withdrawal negotiations and the UK leaves without any certainty about its future relationship with the EU, reverting to the status of being simply another WTO partner state;
  • The talks conclude with an agreement but there is no gentle transition to a new, more distant relationship between the EU and the UK;
  • The talks conclude and a 2-3 year ‘soft landing’ is put in place to allow for a more gentle transition to a more distant relationship
  • The UK and EU agree that it will remain part of the European Single Market, on terms similar to the EFTA countries (unlikely given all UK government pronouncements to date);
  • The UK changes its mind and there is agreement to terminate the Article 50 process and pretend it never happened (almost impossible but no harm in hoping).

Each of these scenarios will result in very different outcomes for the legal sector in both the short and longer term.

The challenge for the Solicitors Regulation Authority and other UK legal regulators is how to act in an environment which is both politically charged and very uncertain but in which the economic stakes are also very high. The only possible approach in the circumstances is perhaps one that others might recognise as having wider application: To stick to the regulatory principles but to be willing to help representative interests, if there is a need to do so, and no conflict of interest involved. But also to listen to all stakeholders and to be as open and transparent as possible.

How the UK leaves the EU and the economic future which lies ahead for it will have an impact on the global legal market, on the supply and demand for legal services from different jurisdictions, on the choice of turnkey law in international contracts on the legal sector, on the future shape of trade agreements involving legal services, and on the demand for lawyer qualifications. So although Brexit is predominantly the UK’s problem, it is not only the UK’s problem.

Brought to you by ICLR.