Implications of Brexit on UK-based Share Plans

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“Don’t expect any immediate changes”, says Mark Higgins, head of Share Plan

It seems that so much has happened in the 10 days since the United Kingdom voted to leave the EU; immediately following the referendum result, stock markets and sterling tumbled. Last week the FTSE 100 recovered Brexit losses and moved to a 10-month high this morning, on the back of soothing statements from the Bank of England, despite lagging banking and house-building sectors. The FTSE 250, which has greater exposure to the UK market, has struggled to get back to pre-Brexit levels. Some of the recovery can be attributed to the attractiveness of UK shares to US investors as, in currency markets, sterling is still weakened and history shows that movements can take months to unfold. Against that backdrop, political turmoil in the UK has raised questions about just when Article 50, the formal notification of leaving the EU, will be given.

Commentators have warned of threats to UK based share plans in terms of increased complexity in operating plans in the EU once the UK finally leaves. Whilst that is a risk, these changes are still a long way off and share plans are likely to be a long way down the list of priorities as the implications of Brexit play out. Don’t expect any immediate changes, although bear in mind that the Market Abuse Regulations, the EU instrument that replaces the UK Model Code, have now come into force. 

Of more immediate concern is managing the impact of share price and currency volatility in operating share plans. Effective strategies to combat such sharp reactions in prices can include extending averaging periods when making share awards and reviewing vesting or exercise processes. Brushing up on the wording of your performance conditions may help you chart a path through volatility and executing transactions in a timely manner mitigates the risk of exposure for companies and employees.

Finally, be mindful of share option exercises, where in-the-money options may dip underwater, particularly when non-UK employees are exercising sterling options and then looking to receive proceeds in their local currency. It’s worth asking yourself: are my processes clear about what happens with underwater options and is my share plan administrator able to support me?

With the dust still to settle on Brexit, the key theme appears to be: concentrate on executing event-driven activities as there are no immediate changes to regulations and keep an eye out for what the next 10 days, 10 weeks, or 10 months, may bring.

If you’d like more information on Share Plan Administration, check out our website or contact Mark Higgins.

Your turn: What’s the impact of Brexit on your share plan strategy? Have your say in the comment box below.

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