A no-deal Brexit would seriously disrupt the free flow of commercially valuable data between Europe and the UK, leaving companies across the finance, hospitality, manufacturing and technology sectors facing “immense” extra costs, according to a new study by University College London.
The report, to be published this week, says potential problems post-Brexit with data transfers have received “minimal attention” in the debate over the UK’s exit from the EU, but could turn out to be as serious to the economy as more visible issues relating to cross-border trade.
The study says that even if there were a Brexit deal, new rules on data transfers between organisations in the EU and the UK – currently governed by EU law – could prove hugely difficult to renegotiate bilaterally. But if there is no deal, the study warns there will be immediate and serious economic repercussions. “No transitional period would entail significant legal, economic, political and social disruption in the UK,” the report says. “The UK would immediately become a third country in EU law, and instant disruption to EU-UK data flows would ensue.”
One of the report’s authors, Oliver Patel of UCL’s European Institute, said a typical example would be problems for a UK-based hotel company which can currently receive data from EU countries about customers using its hotels on the continent – valuable for commercial reasons, including to target people for promotions.
The Confederation of British Industry (CBI) cited another potential example, in which a UK conference centre could lose bookings from EU companies that would be in breach of personal data rules after Brexit if they sent attendees’ data outside the EU without the right contractual safeguards.
Without a special dispensation from the EU after Brexit, called an “adequacy agreement”, firms receiving data from the EU could find themselves facing huge extra legal bills to ensure compliance. The UCL study says: “This requires companies to direct immense costs and resources towards enabling [previously unrestricted] data transfers.” The UCL experts say it is far from certain that an “adequacy agreement” would be made because of concerns about a lack of data protection rights in the UK post-Brexit and the potential for “unprotected onward data transfers”, particularly to the US.
The UK currently has the largest data centre market in Europe. More than 75% of UK data transfers are with EU countries.
Until the UK leaves the EU, data can flow freely to and from other member states and has been able to do so since the emergence of the internet and digital economy. The free flow of data within the EU is governed by harmonised data protection rules and common systems of regulatory enforcement. EU member states also have shared arrangements for data flows with non-EU countries.
The report says: “UK economic activity is dependent on these flows. But disruption would place immense compliance burdens on individual organisations which would have to invest in legal and administrative fees to ensure EU-UK data transfers remained lawful.”
It adds: “In the long term it could also lead to the UK being less attractive to investors and thus generate knock-on effects for the economy at large.”
Felicity Burch, the CBI’s director of digital and innovation, said: “A no-deal Brexit endangers UK’s position as a global hub for data flows. From day one, the free flow of data that underpins every sector from automotive to logistics will be hit.
“Businesses have already undertaken costly legal processes and some are investing in EU data centres. An adequacy agreement must remain a priority for government or the UK’s £174bn data economy is at risk.’