Brexit means data headaches and business uncertainty, say IT pros and lawyers

The UK has voted to leave the European Union with 51.9 percent voting leave and 48.1 percent voting to remain. While it's unclear what the long-term consequences of this result will be there is much speculation around what impact 'Brexit' will have in the tech industry.


This article was first written in April 2016 with a post-EU referendum update on 24 June 2016.

Computerworld UK casts an eye at the business IT pitfalls likely to stem from Brexit-driven isolation from the European Union.

Image: Flickr Creative Commons / fdecomite
Image: Flickr Creative Commons / fdecomite

Nicola Fulford, Head of Data Protection at Kemp Little said: 

"Immediately, there will be no change to obligations as the Data Protection Act 1998 is a UK statute. In general terms, a weakening of data protection laws is unlikely given the general direction of much of the rest of the world towards greater levels of data privacy. More specifically, on leaving the EU – likely in the next 2 years - the UK would have to apply for an ‘adequacy’ decision to keep flows of data moving freely from EU countries, and therefore to continue trading in the digital world.

"In less than 2 years, the EU General Data Protection Regulation (GDPR) comes into force in the EU – even if the UK has already left the EU by that stage. The UK’s laws would have to match those higher standards of the GDPR, in order either to obtain and maintain an ‘adequacy’ decision, or to join the European Free Trade Association; an there will in any case be direct compliance obligations under the GDPR for those entities with EU customers. It is therefore unlikely that, either in the short, medium or long term, Brexit will result in a material departure of UK law and practice from EU law in relation to the use and protection of personal data," she added.

Listen: UK Tech Weekly Podcast: The impact of Brexit on the technology sector

Tech industry group TechUK’s members are overwhelmingly in favour of staying – at 70 percent of those surveyed. Industry group for the capital’s tech sector, Tech London Advocates, agrees, while the majority of the IT vendors we’ve asked are declining to comment. (See also: what is a graph database?)

And exiting the EU has the potential to cause headaches for the CIOs and IT teams of just about any business operating in the UK, and for tech firms themselves.

Brexit for business: Skills gap left unplugged

As our sister title writes, CIOs are feeling some trepidation about a possible Brexit – with worries that a vote to leave could significantly disrupt operations, particularly in hiring.

British organisations that employ EU staff in their IT teams include, to name just a few: British Gas, Jaguar Land Rover, infrastructure projects HS2 and Crossrail, the Royal Mail, Save the Children, Thomson Reuters, Eurostar, Gatwick Airport, De Beers, Paul Smith, BT, JCB, Virgin Airways, Starbucks, Channel 4 and The National Trust.

And with all the talk of a UK-wide skills gap, does it make any sense at all to close the borders and clamp down on the freedom of movement for workers?

The CMO of data analytics company Relative Insight, Rich Wilson, says businesses would have to be “bonkers” to want a Brexit. 

Finding staff is tough enough, Wilson says, as businesses have to compete with all the startups going, along with the hiring might of Britain's finance sector.

“I know quite a few startups that are increasingly concerned about the impact Brexit would have on their existing team, including their founders,” Wilson adds. “These are firms with people from around Europe who would have to leave the country in the event of the UK exiting Europe.”

“In the worst case scenario we could see entire firms leaving.”

Quocirca’s chief analyst Clive Longbottom believes that anti-immigration noise from government has already perturbed some businesses.

Depending on the terms of negotiation following a Brexit, there could be further complications with hiring people across Europe who have specific, desired IT skills.

And besides, what will happen to the workers who are already here?

Longbottom says: “Visas may be required, more checks as to capability to work in the UK, does the person meet the points number set by the government to migrate here, and what happens to the person’s family?

“If you outsource, then the outsourcing companies will either have to jump through all those hoops as well, and so up their costs to you, or do remote outsourcing where the skills stay in-country and operate from there.

“This is not a good situation as many issues require on-site access – an outsourced approach may need to have a thick Brit on-site being talked through a set of actions by the intelligent Pole in Poland.”

Any anti-European sentiment that is whipped up could have far-reaching consequences for day-to-day operations at the coal-face of IT.

Longbottom warns that government could find itself with the burden of having to train up an emerging workforce in the kind of IT skills that are already contributing to the supposed skills gap in the country.

“The government would have to step up to the mark and train more people in the relevant IT skills,” he explains. “But, as this would take years to come up with anything, UK PLC would be impacted pretty badly at the IT operations level.”

“Anything that makes bringing the skills needed into the country will further muck up Cameron’s much-vaunted claim that we lead Europe in the digital world.”

Brexit for business: Regulation

Iain Monaghan, partner at international law firm Pinsent Masons, thinks the impact of a decision to remain or leave is most likely to be felt by the IT sector in two areas: “The attractiveness of the UK as a centre for tech businesses and the effect of a decision to leave on the regulatory environment.”

“I don’t believe our colleagues in the EU would refuse to enter negotiations with the UK on trade,” Monaghan explains. “And on whatever arrangement would be put in place to cover data protection and privacy, once we ceased to be subscribers to the General Data Protection Regulation (GDPR).”

The GDPR is a regulation that is expected to be enforced by 2018. Its purpose is to strengthen data protection for individuals across all EU member states – and crucially for businesses, regulates exporting personal data outside the EU.

In the case of a Brexit, agreements would need to be formed between British firms operating in Europe and with European companies.

Nigel Beighton, who was VP of technology at web hosting firm Rackspace, warned in 2015 that businesses urgently need to think about how they would house their data in foreign countries.

“Within the EU, differences in legislation and uncertainty can form imposing barriers; outside of the EU, these are exacerbated,” he said at the time. 

“We should be looking at measures to integrate and normalise processes, rather than obfuscate as a British exit from the union almost certainly would.”

Careful thought will need to be given to achieve the ongoing free flow of data between the UK and the EU, says Mark Taylor, partner and data protection expert at Osborne Clarke.

“Ultimately, it is likely that the UK’s data protection laws would still need aligning with GDPR in some way,” Taylor says.

According to VMware’s chief technologist EMEA for vCloud Air, Richard Munro, a UK exit could spell stricter, more independent data laws that businesses have to adhere to – including an effective requirement to keep UK data on UK soil.

In such an instance, businesses would have to conduct an audit of their data to understand exactly where everything sits.

But recent research from VMware claimed the majority of UK organisations cannot say with confidence where their data is stored. Only 10 percent of those surveyed were in the position to bring that data back to UK soil if needed.

“Organisations will need to poll their cloud suppliers to check exactly where their data may be stored, and that if it is the UK, that the provider can guarantee it stays there,” says Munro.

“The IT hosting industry also needs to recognise these changes – being clear about their own service’s data governance model is the only way customers can understand if they need to consider the impact of using the service on their own compliance requirements.

“Cloud interoperability remains a mainstream challenge, and our survey also showed customers felt it would cost an average of £1.6 million to change their service provider to a local, UK-based alternative.”

Brexit for business: Reputation

Attracting both workers and businesses to Britain could also prove difficult.

Tech London Advocates warns the capital’s reputation as a European centre for digital is at risk.

“There is significant concern Brexit would undermine this position and threaten relationships with the European market,” Russ Shaw, Tech London Advocates founder, says. “Brexit could see global businesses locating in emerging digital hubs in Berlin, Paris and Stockholm rather than London.”

According to Quocirca’s Clive Longbottom, it would make life “far easier for EU companies to focus on their open market, pushing skills around the remaining EU, rather than bothering with the UK.”

Monaghan of Pinsent Masons shares the concern that there could be a “significant period of uncertainty” while negotiations are concluded – a period that “might be extended if the exit of the UK led to a rolling wave of exits or threatened exits.”

“It is quite conceivable that there would be a logjam on both sides – in the UK parliament, as it struggles to deal with the implications of the UK’s new status,” he says. “And in the EU where there might be more pressing immediate concerns than trade with the UK.”

Brexit for business: Trade

The majority of members of British trade group Tech London Advocates, comprising 2,500 from the capital’s technology sector, believe leaving the EU could have an immediate negative impact on supply and trade.

Three in four surveyed members feel that Brexit would make reaching customers in EU countries more difficult – and potentially threaten relationships with Europe-based suppliers.

“If we get a ‘no’ vote I’m sure we’ll see contractual terms changing,” says law firm Kemp Little’s head of commercial technology, Calum Murray. 

“Contracts being shorter – particularly for services – as people hedge to see where we land. They will ask: ‘Should we protect ourselves by doing shorter deals?’”

And Murray warns that in procurement, decisions are already being delayed – because businesses are unsure if a leave vote will affect deals that are already on the table.

“From the customer’s side, you will see, and we’re starting to see acquisitions being delayed,” Murray says.

On the supply side, businesses either procuring or offering IT services are likely to have to wrestle with a change in terms and conditions, too, says Osborne Clarke’s Mark Taylor.

“As a result, English law-specific terms are more likely to be required than at present,” he says. “This may also impact the choice of English law by US-based businesses as their preferred local law when contracting in the EU.”

Taylor says leaving the EU would also undermine the perceived benefits of the European Commission’s Digital Single Market project, which seeks to unify EU countries under one set of market regulations in digital.

“While no direct legislation has yet been implemented under this initiative, it is unlikely that harmonisation would occur to the same extent, although that would be determined by the format Brexit takes,” Taylor says. “This makes the UK’s position around the various initiatives uncertain.”

Brexit for business: Prospects

For IT businesses, Brexit represents the unknown. With the government tight-lipped about any provisions for leaving, it’s all speculation, and speculation is tough to prepare for.

Some of the worst case scenarios: leaving the EU could mean a shortage of talent and a drain of skilled workers. 

It could mean the redrawing of contracts, delays to procurement, and complications to trade. 

But these worries could be temporary or they could propel forward a tougher period of uncertainty.

At the same time, a prepared, slow and transparent exit from the EU does not necessarily have to be a disaster.

What’s clear is that a step toward the unknown will naturally shake a conservative outlook into some businesses as they work to assess the lay of the land. The IT industry is no exception.

There are a few likely outcomes if the public casts a vote to leave.

Kemp Little’s Calum Murray says Britain’s got four main options.

He says Britain could embark on a route similar to Turkey, like a customs union agreement. Or it could go after the Switzerland model – with free trade agreements, or even free trade agreements by sector.

The UK could also join EFTA and the EEA to access the common market, similar to Norway. Or Britain could “forget we were ever part of the EU and treat it like any other third party we’re going to trade with.”

“The key takeaway is that, while we as a country have our thoughts on how we want it to run, these things are all going to have to happen by agreement,” Murray says. “We’re going to have to wait to see where the last of it gets out, if the vote is for coming out, for which option is actually favoured.”

Owing to the extra international complications that IT faces compared to some other industries, the sector will have to prepare as much as it can to soften any potential blows.

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