Tuesday 20 February 2018

From data sharing to stalled IPOs, vote is spooking the tech sector

A Union Jack hangs alongside an EU Flag. Photo: PA
A Union Jack hangs alongside an EU Flag. Photo: PA

Jeremy Kahn and Adam Satariano

The lasting impact of the UK's vote to break with the European Union won't be known for years, but the shift has immediate ramifications for the global technology industry. There are a few issues to be particularly mindful of.

Chaos in the global markets is not an environment that makes investors eager to buy shares in an initial public offering. Any technology start-up considering a stock market listing will likely wait to see how the turmoil following the Brexit vote shakes out.

There has already been a dearth of listings this year and the UK vote will only extend the lull. The European telecommunications company Telefonica is said to be postponing plans to sell shares of its infrastructure unit Telxius and UK wireless unit O2.

Impacts have been felt elsewhere in the world, with Line Corp, Japan's most popular messaging service, delaying the setting of a price range for its initial public offering as a result of the vote.

The Leave vote opens up potential headaches for anyone concerned with data protection, already a vexed issue between the US and Europe. On its own, the UK will need to negotiate new data sharing arrangements with both the European Union and the United States.

Right now, the UK's data protection rules are in line with the European Union's Data Protection Directive, but that regulation is likely to be replaced with a much more stringent General Data Protection Directive by 2018. In order to continue to move data freely between the UK and Europe, the UK will have to prove it offers equivalent levels of protection. This will require changes to UK law, said Jane Finlayson-Brown, a partner specialising in data protection issues at the law firm Allen & Overy.

Meanwhile, the US and European Union just negotiated a new Privacy Shield Agreement to govern data transfers, to replace the so-called Safe Harbor Agreement, which Europe's top court struck down last year. The UK will no longer be covered by Privacy Shield and so will have to negotiate its own data sharing treaty with the US.

Many companies, Finlayson-Brown said, may opt to shift their data processing centres to the EU since companies must choose an EU country as their "main establishment" to comply with the new EU data protection directives. She said companies that might have opted to maintain the UK as their main data processing centre for Europe will no longer have that option.

Outside the EU, technology companies may struggle to attract talent. Alphabet, Amazon.com, Apple, Facebook and other tech giants have built large offices in the UK, in part as European hubs to recruit engineers and other employees from throughout the region. Young technology companies also have relied on the region's immigration policies.

According to Tech London Advocates, an industry group for the area's technology sector, roughly one-in-five London tech workers is an EU national and roughly a third are from overseas. Tech companies might shift more jobs to Ireland if UK immigration rules become too difficult. Financial services start-ups have been the crown jewel of the UK technology scene. Many are there because they can use regulatory approval in the UK to sell services throughout the EU. If the ability to "passport" is lost, companies will have to get regulatory approval in a remaining EU jurisdiction as well.

Start-ups have already said that the uncertainty leading up to the Brexit vote was making it harder to raise money from investors.

"There's a risk that some of these businesses will leave," said Russ Shaw, of Tech London Advocates. "Things are going to be in flux for a while trying to understand what all this means." (Bloomberg)

Irish Independent

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