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Guest blog post by Farzad Henareh, European Managing Director, Stericycle ExpertSOLUTIONS

Leading up to the June EU Referendum, one of the primary debates centred on the burden and benefits of single market regulation. With the UK now set to leave the EU, business leaders in every industry are considering what the implications are for the regulatory environment in which they operate and equally what it will mean for the inevitable day when they experience a product recall.

During the campaign, the Leave lobby argued that EU regulations were crushing British business. “Outside the EU we wouldn’t have all the EU regulations which cost our economy £600 million a week,” Michael Gove claimed during the campaign.[1] An open letter from small business leaders and entrepreneurs also urged a Leave vote, stating “As entrepreneurs, we deal with the EU’s constant diet of unnecessary regulations which add to our cost base, reduce our bottom line and raise prices for our customers for no return.”[2]

This position stood in stark contrast to big business leaders, who signed their own letter in support of remaining in the EU. While the letter acknowledged the regulatory burden stemming from the EU, it stated that the prime minister was working to reduce the burden and that “Business needs unrestricted access to the European market of 500 million people in order to continue to grow, invest and create jobs.”[3]

The head of the manufacturers’ organisation EEF echoed those statements, calling the EU a “useful whipping post” days after a survey of its roughly 5,000 member companies showed a clear majority wanted to stay in the EU: 61%, compared to only 5% who wanted to leave.[4]

One thing is certain, Brexit creates a vacuum in regulatory certainty, leaving companies in every industry exposed. For pharmaceutical and medical device manufacturers, the future approval process for new drugs and devices is an open question, as are labelling requirements for food products and safety standards for consumer products and cars.

In the face of this uncertainty, our business leaders are left with three options. The first is to enact more stringent regulations than those developed by the EU. That would leave British companies at a severe disadvantage and would likely outrage Brexit backers who had argued for easing the regulatory burden on the UK. Another possibility is to develop more lenient standards in the hope of giving businesses the boost they need to ensure they remain buoyant post-Brexit. However, this might have the opposite effect. The EU is the UK’s largest export market, accounting for more than 44 per cent in 2014. Lower standards would make it difficult for businesses to operate in the European market and jeopardise that crucial financial relationship. Finally, the UK could adopt regulations that reflect the EU’s established standards. Given the disadvantages associated with other options, many observers believe this is the most likely scenario.

If regulations remain consistent with the EU, does that mean companies won’t feel the regulatory impact of Brexit? Not necessarily. Even if the regulatory framework remains, the processes in place will change – and businesses must be wary of any strain this could put on them in the face of future product recalls.

It’s also possible that the UK could be excluded from participation in the Rapid Alert System for dangerous non-food products (RAPEX) and the Rapid Alert System for Food and Feed (RASFF). We could adopt a model similar to Switzerland, which is part of RASFF but not RAPEX. Exclusion from either of these organisations would mean they could not participate in joint market surveillance actions that facilitate a coordinated, automatic approach to product safety concerns. Under this scenario, the UK would need its own authority to issue safety alerts and lead product recalls, which could delay the process. For consumers, this could cause potentially dangerous products to remain on the market and in their homes longer than before. For businesses, this means one more market to initiate and execute recalls, adding another layer of complexity and further straining internal resources. Recall costs could rise, but to what extent depends on the product type, scope, remedy and many other factors.

Until the dust settles on the Brexit vote, regulatory uncertainty will continue. In the meantime, companies should take steps to prepare for each scenario. From a regulatory perspective, this means analysing current customers and reviewing supply chains to determine who might be affected and how. While it will take time for the divorce between the EU and UK to be finalised, EU leaders have expressed a desire to complete the process swiftly to restore confidence in the global marketplace. Businesses are braced for a tumultuous environment, but those that prepare for every outcome will be best positioned to withstand the changes.

[1] http://www.independent.co.uk/news/uk/politics/brexit-15-eu-laws-we-will-miss-in-britain-a7103031.html

[2] http://www.telegraph.co.uk/news/newstopics/eureferendum/12181306/EU-referendum-200-small-firm-bosses-and-entrepreneurs-tell-Britons-to-vote-for-Brexit.html

[3] http://www.thetimes.co.uk/tto/opinion/letters/article4696807.ece

[4] http://economia.icaew.com/business/may-2016/how-manufacturing-impacts-the-eu-referendum

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