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As the U.K. awaits a decision on its exit from the European Union, uncertainty and fears about London's standing as a financial centre remain the major concerns for U.K. and EU law firms and their clients.

A straw poll of top partners found that amid the recurrent theme of crippling uncertainty, partners' biggest overarching concern was the possibility that London will cease to generate the same level of work for commercial law firms as it has done in the past.

Freshfields Bruckhaus Deringer head of financial institutions regulatory partner James Smethurst said that while there are short-term complications, the long-term worry is Brexit's effect on the wider economy. He said: "If you've got non-financial businesses trading with the EU, then they're going to face an impact from Brexit. And then there's a knock-on impact on the financial sector if companies have difficulty financing the loans."

"In uncertain times people tend to sit on their hands"

Hogan Lovells corporate partner Daniel Simons said: "A lot of the work that I do focuses on the London market – in particular IPOs and secondary fundraisings – and neither market volatility nor uncertainty bodes well for that. If we see a consistent trend of large European companies looking to do IPOs in other jurisdictions, it could be the start of a slippery slope for us."

According to data from the London Stock Exchange, 2019 has had the fewest IPOs for the start of the year since 2009.

Simons added: "In uncertain times… people tend to sit on their hands. Why would you embark on a transaction if you don't know what the landscape is going to look like?"

Norton Rose Fulbright corporate and regulatory partner David Whear said that other European Economic Area (EEA) members are exacerbating the financial and legal instability, as their Brexit regime structures that have been put in place over the past month are making it more difficult for U.K. companies. This, he said, is why European businesses are so opposed to Brexit.

Whear said: "When looking at those regimes, they're very limited. For some clients who wanted a sigh of relief, what they thought would be made available to them hasn't been."

However, partners agree that the London M&A market has been performing very well under the circumstances, despite a severe lull in IPOs. Mergermarket data for the past five years shows that since 2014, M&A activity has remained steady on average, each year producing more than $3 billion dollars in total deal value with a gradual increase in deal count.

Yet fears that London would lose its financial attractions have prompted partners of European firms to closely monitor their U.K. offices, to evaluate how profitable they will continue to be post-Brexit.

One partner from a European firm said there are worries that London will produce less work while also becoming a more expensive place in which to have an office. He said the price of housing lawyers in the city will increase for European firms that pay for lawyers to live in the U.K. on secondment.

Preparing for the worst

Law firms said that for clients, the biggest concern is ensuring that they are prepared for the worst-case scenario, and are adequately set up to operate under multiple regulatory bodies once the U.K. leaves the single EU market.

Clifford Chance head of financial regulatory Christopher Bates said: "The critical issue for many clients is ensuring that their entities are fully – or will be – operationally ready if the U.K. leaves the EU on March 29. And their counterparties must be operationally ready as well."

A few partners said the majority of their clients had already activated their no-deal contingency plans, unable to wait any longer for a Brexit deal.

"Many have done their homework, and many have pulled the trigger"

Bart Van Vooren, senior associate and EU law expert at Covington, said most contingency planning started in January 2018, and was activated around April and June of last year.

"A general impression is that small and medium-sized enterprises don't have enough resources to prepare, while our clients – large worldwide pharmaceutical companies – have invested millions into this. Many have done their homework, and many have pulled the trigger," he said.

No turning back

As a consequence, Allen & Overy financial services regulatory partner Nick Bradbury said some companies were now likely to be beyond the point where they are able to reverse their no-deal preparations and others warn that however much has been planned, it will not be enough by the deadline.

Freshfields' Smethurst said: "Not everything is going to be in place by the end of March, no matter how hard they've tried."

" [It's] like trying to do complicated heart surgery with a spoon"

Smethurst said that abruptly leaving the EU regulatory and financial frameworks within which the U.K. has been "deeply intertwined" for the past 40 years would be "like trying to do complicated heart surgery with a spoon".

Covington's Van Vooren said one big issue is that a lot of the guidance given by the European Commission is highly politicised and thus, very inflexible. He said: "They can't be seen in their advice to be negotiating a no-deal Brexit or a deal in anyway, so they're having to be very strict and inflexible in their advice – and that's been a massive headache."

Whatever Brexit the U.K. gets, CMS restructuring and insolvency partner Glenn Flannery said some of the biggest damage has already been done. He used Flybmi's administration as an example, the company attributing Brexit uncertainty to the collapse. Flannery said the company's statement alluded to the market disruption to the trading of European carbon credits under the European Emissions trading scheme.

Flannery said: "What is sometimes overlooked is that there are current issues with the European Union having pressed the button on its own contingency planning."

Since the referendum, some companies, including a few large financial services providers, have moved their entities to elsewhere in Europe. Many have set up in Dublin to retain a base in the EU.

"Some will assume there will be a transitional period. But that's a game of chance"

Whear from Norton Rose said companies are now transferring entities to work within the EU, and within the regulations, but others have held off. He said: "Some will assume there will be a transitional period. But that's a game of chance for obvious reasons."

The future for firms

The post-Brexit landscape is no clearer for the law firms themselves. During Legal Week's conversations, the words "uncertain" or "uncertainty" came up 20 times.

Since 2016 – the year of the Brexit referendum – 2,011 UK solicitors have been admitted to the Irish roll, and law firms fret over whether they have correctly positioned themselves geographically to give the right legal advice.

Ashurst private equity partner David Carter said: "If you make a sh*t deal you can live with it, but at the moment it's uncertainty that's the problem. Business will adapt as long as it knows what to adapt to."

Firms cannot even agree on whether a delay might bring some stability. 

One partner said: "A delay isn't really going to help – it's just prolonging the pain. The withdrawal deal is okay – with the transition period it would work."

But another said he and his clients would welcome a delay, saying at least you know nothing is going to happen yet: "Either you have an extension or you sign the horrific deal that's on the table. Or you revoke Article 50," he said.