The impact of Brexit on UK tech companies: we interview an industry insider

On Friday 24 June, 2016 we woke up to a historic moment in British history, as the referendum taken the day before decided that we would leave the European Union.

While we are still a member of the EU until article 50 has been invoked by the British Prime Minister, it hasn’t prevented a number of businesses rethinking their long term strategies and making plans to mitigate any potential adverse impacts of Britain leaving the EU.

UK tech companies have a lot to consider after the Brexit vote, issues ranging from hiring and free trade agreements, to GDPR (General Data Protection Regulation) and tariffs.

But how will Brexit impact UK hosting and domain registrars?

We’ve spoken to an industry insider (who we shall refer to as Delilah for purposes of anonymity) to see what they, and those that work with them, thought about the future of the market and the impact Brexit will have on their industry.

TL;DR

• Major server providers had to increase UK pricing due to the impact on the exchange rates, which caused displeasure across the country.
• .EU domains could face interesting changes, as .EU is run by the European Commission, which states that .EU domains need to be registered in the EU and EEA.
• Many companies will likely move their servers to France or other EU companies.
• It is likely that SMEs and smaller companies will be hit by this change.
• Privacy laws are expected to be largely similar to the ones we have with the EU now.
• The government has made progress with its understanding of technology and science, but has a long way to go in regards to privacy, freedom of expression and encryption.

SALT: A lot of tech companies were in favour of Remain in the lead up towards the referendum. Did you find this to be the case with hosting companies? Were there any exceptions to the rule?

DELILAH: I can’t say I discussed Brexit too much with those in the industry, but I did see a range of views on both sides – for the most part I don’t recall seeing any companies expressing a view on it – despite some very real potential impacts it could have on how we do business.

SALT: The day after the vote, a lot of people and businesses were in shock. Was your company worried? Did you get many companies or website owners inquiring about how this would change things for them?

DELILAH: We’re a European company in many respects, we have a number of EU members of staff in our UK HQ, and we run a lot of our support from our office in Europe.

Naturally many members of staff were/are concerned on how this may impact their right to stay, and their right to continue working for us. We were reassured by the company directors the day after that they do not expect any serious problems.

On a company level (while not involved in these kinds of decisions), I doubt we’ll have too many problems adapting – we’re a good sized company now, and have many benefits of a multi-national – such as lawyers on staff within the group – who can help us navigate our way through the legal issues which can crop up.

When the exchange rate plummeted down we were certainly very aware of the potential impact this could have, and how it could squeeze margins significantly. – Delilah

The bigger immediate concern was the impact that Brexit had on the exchange rates, in hosting most software licensing, domain names and servers are based on USD pricing. When the exchange rate plummeted down we were certainly very aware of the potential impact this could have, and how it could squeeze margins significantly.

Across the industry I did observe many express their displeasure when major server providers increased UK pricing by 20%, and we had to do similar increases on domain pricing to bring it back from loss-making. I expect we’ll see more pricing increases trickle through as companies review and adjust their pricing periodically and re-assess as stock diminishes.

We had a few customers querying how this would impact them, at the moment the answer is it doesn’t much – yet. Other than I would expect to see price increases, particularly from those which historically kept very thin margins.

Where this could prove interesting in the domain world is .EU domains. .EU is run by the European Commission and has rules in place which only allow registrant to be within the EU and EEA.

If the UK decides to exit these, UK residents/citizens will no longer have the right to their .EU domain and we could face some interesting challenges with one of the biggest markets for .EU needing to re-address potentially hundreds of thousands of websites.

If the UK decides to exit these, UK residents/citizens will no longer have the right to their .EU domain and we could face some interesting challenges – Delilah

SALT: Visitor data is a big thing for the EU. Laws state that if a website is storing EU visitor data on a server, then that server should reside inside of the EU. There is talk of moving these servers from the UK. Do you see this happening in the future?

DELILAH: I think it’s very likely that we’ll see a number of companies moving their servers to France, or other EU countries even before we pull the trigger on Article 50.

A number of customers host in the UK as it enables them to easily meet their EU requirements, if we’re no longer part of the EU this could prove difficult.

It is however possible that we may end up with a similar arrangement as the United States, where there was the recently defunct “SafeHarbour” scheme, and the hasty replacement “Privacy Shield” – these are not perfect though, and may not apply for all cases.

SMEs are far less able to operate in such a multi-national fashion, especially if it means trying to maintain compliance with EU and UK law for data protection – Delilah

SALT: If major changes were to occur in regards to EU and UK based servers, which companies or industries do you think would have the most difficult transition?

DELILAH: Small and medium sized businesses will likely be the hardest hit by this. A big corporate company, while it may not want to, usually has the resources and technical capabilities to relocate their IT infrastructure, it could cost a fortune, but it’s doable if required.

SMEs are far less able to operate in such a multi-national fashion, especially if it means trying to maintain compliance with EU and UK law for data protection, consumer rights, online selling and various other aspects of international trade which up until now has been made very easy under the EU Single market – including the guaranteed right to be able to visit your customers in their country if needed.

SALT: EU laws also protect users from privacy issues, which have in the past, come up with companies such as Google and Microsoft. Do you expect any new UK laws to be as stringent and watertight as those enacted by the EU?

DELILAH: Based on the past record of this current Government I would be extremely surprised if we end up with more stringent laws on Data Protection or privacy.

It is this Government after all who prior to the referendum seemed to be fighting the EU to be able to weaken these types of laws to facilitate (or at least legalize) their intelligence programmes.

Should the Conservative Government manage to see this process through to the end, I would expect the resulting replacement legislation to either be exactly what we have now (without the EU being a fallback to enforce it) or we will see “business friendly” legislation which weakens the current protections available.

At the moment, for the most part, the Government takes a pretty hands off approach in terms of regulation of the hosting market – Delilah

SALT: Any new laws surrounding hosting and data will of course be designed and implemented by the Government. Some would argue that the Government’s understanding in tech and science hasn’t always been spot on in the past. Would you worry about some of the changes or decisions that the Government might make?

DELILAH: Proper understanding of the technical, scientific and social issues is always important when our representatives are making decisions – they can always understand these issues better than they do.

The UK Government has made some positive steps in recent years in how they approach technology such as the Government Digital Service (GDS) which, while not perfect, does a much better job at handling online services and making them accessible to the public.

IF they can apply similar analysis and understanding, in hiring the right people and listening to them, we could do better on this front. They could also decide that certain things are better handled in the private sector and take a hands off approach.

this government has also shown a severe lack of understanding and appreciation for privacy, freedom of expression and encryption where they seemed to show a truly archaic view of how these technologies work – Delilah

That said, this government has also shown a severe lack of understanding and appreciation for privacy, freedom of expression and encryption where they seemed to show a truly archaic view of how these technologies work and how realistic controls could be implemented.

At the moment, for the most part, the Government takes a pretty hands off approach in terms of regulation of the hosting market.

The only real interference I am aware of tends to come from the security services making some “special” requests when they suspect customers of unlawful activity as well as law enforcement tackling child abuse and similar issues which can end up being hosted on unmanaged servers.

As with most of these things, it’s really hard to say either way as we simply do not know and as of yet have no real idea what the Government considers priorities.