Sick to death of Brexit coverage? Perhaps, but Brexit is likely to be the most disruptive event in financial services since the crisis of 2008. In view of Theresa May's troubles in persuading British politicians to endorse the humiliating deal she has struck with the European Union's commssioners, this article's step-by-step guide might be of use.

Recent coverage suggests that the Prime Minister will be unable to secure Parliamentary approval for the deal that she has stuck with the European Union and that the UK is probably heading towards a no-deal ‘hard Brexit’ on 29 March 2019. If this happens, the freedom of services, or a proxy arrangement, will disappear on that date. For financial firms, this means the loss of ‘passporting’ rights and the ability to operate freely in the European Economic Area, subject to a relatively simple notification process.

Instead, in order to enjoy these passporting rights, a British firm that wants to carry on business in the European Economic Area (which comprises the EU plus a couple of countries more) will probably have to have a licence and head office in an EEA member state and exercise its 'passporting' rights from there. Assessment of the ‘equivalence’ of the UK's legislation – despite the fact that, upon Brexit, the UK will be the most 'equivalent' non-EU country in history – has yet to be formally undertaken in all financial sectors, so our hypothetical firm's continuation as a ‘third country branch’ may not be an option. ('Third country' is an EU term for a non-EU country.)

Many financial institutions are therefore thinking of establishing a subsidiary in an EEA member state and seeking a licence from the appropriate competent authority. The question is...where?

There are a number of considerations to take into account.

Natural affinity. Does the firm already have a branch presence or other infrastructure in another jurisdiction? It would probably be far easier to 'scale up' than set up a business from scratch. Perhaps the firm's ultimate beneficial owners – or controllers in between – are domiciled in a convenient country.

Reality. To benefit from a licence (anywhere) in the EEA, the firm must be able to prove to a regulator that its head office is located in that EU country (and that it actually carries out business there) and the regulator will expect to see some physical presence there, particularly the people who represent the firm's ‘mind and management,’ the key decision-making directors, the majority if not all of whom would be expected to reside in that territory.

Language . A good relationship with one's regulator is extremely important, whatever the jurisdiction. Although the majority of competent authorities have fluent English-speakers on their payrolls, no firm should blithely assume that this-or-that regulator does. Why should it expect them to speak English if that is not their native tongue, nor indeed the language in which contracts and agreements must be drafted? It is vital for a firm to be able to talk to its regulator freely.

Experience and reputation. Perhaps this is the most subjective consideration, with experience and reputation often going hand-in-hand.

The Financial Conduct Authority is the most ‘experienced’ regulator anywhere in the EEA, with the most firms licensed in accordance with each of the 'single market' directives. [The 'single market' is a term that the EU applies to its complicated tangle of national protectionist barriers and all partial immunities and total exemptions from those barriers.] As such, it has developed efficient, proportionate and risk-based processes over time and, in view of the volume of applications for authorisation that firms submit to it every year (c.5,000 and rising) is very familiar with most business models. Conversely, jurisdictions with less developed markets (i.e. all of them) may not fully understand British firms' business models when they apply for licences, causing the process to take longer than it should. The firm should therefore check to see how many firms that its target regulator has on its register.

The ‘reputation’ of a regulator is often linked to its experience, but it sometimes stems from the strength that everybody thinks that it has, whether "at the gateway" or as a supervisor. Although the EU passed its 'single market' directives to establish a level playing field within its borders, different EU countries enforce them with varying degrees of consistency.

The firm also ought to think about its customers when choosing a venue. How will they react to the fact that it is now licensed in Luxembourg, or Austria? What else are they thinking about the move? Perhaps of more operational importance, what is the view of the firm's banking partners?

Regulators typically do not respond to anonymous technical enquiries. When the firm wants to elicit information it must put its head above the parapet, either directly or through its advisor. It can reduce the chances of misunderstanding or miscommunication by explaining its own business model directly to the regulator in question. I have found that most European regulators are happier to meet applicant firms in person than the FCA is, or has the capacity to. This is because they process a relatively low number of applications.

Timing. It is my understanding that only the UK has a long-stop for an incomplete application, with other regulators starting their statutory clock (e.g. three months for PSD2, six months for MiFID II) only once they think that an application is complete, or stopping the clock while the applicant provides extra information. No regulator except the FCA publishes any meaningful key performance indicators for average 'determination' times. If the firm is prepared to put its head above the parapet, it should ask how long the application process is likely to take, starting at the date of submission and ending with the date of authorisation.

Tax and employment law. Corporation tax is levied at different rates in the various countries of the EEA. Although this is not a regulatory consideration, this is worth considering to any firm that wants to make a profit, as is the likelihood of being able to recruit experienced people in this-or-that country, and whether its employment laws will help or hinder.

The follow-up question is: when to jump? We at fscom have seen a number of clients submitting applications to foreign regulators already, but there are still many firms that have yet to make a jurisdictional decision. The deadline of March 2019 looms and time is running out.

Finally, the amount of information to be provided to the regulator – whichever one that our hypothetical firms finally chooses – should not be underestimated. IF it is a payments firm, the European Banking Authority's Guidelines on Authorisations are extensive and might force its directors to meet the regulator in person and explain its business model to the nth degree. It should prepare itself for this. Although it might be able to rehash the information it submitted in its recent application (for authorisation or re-authorisation) to the FCA, it will not be allowed to simply copy and paste.

You could cross your fingers and hope for a deal to be agreed at the last minute, providing the breathing space of a transition period (to December 2020) but, as the old adage goes, you really ought to hope for the best and plan for the worst.

* James Borley can be reached at james.borley@fscom.co.uk