How Brexit affects this Canadian tech firm’s risk profile

A Canadian software company faces risk and uncertainty because Britain is leaving the European Union.

“We face risks associated with the potential uncertainty and disruptions that may follow Brexit,” Open Text Corporation said Aug. 2 in a securities filing. Open Text, which employs more than 12,000, makes software that lets companies and government departments manage their computerized documents on customers and employees. In addition to its corporate head office in Canada, located at the University of Waterloo in Ontario, Open Text also has a large facility in Reading, England.

For Open Text, the risks arising from Brexit include “volatility in exchange rates and interest rates and potential material changes to the regulatory regime applicable to our operations in the United Kingdom,” the company noted in its annual report released Aug. 2.

“Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets,” Open Text warned. “For example, depending on the terms of Brexit, the United Kingdom could also lose access to the single EU market and to the global trade deals negotiated by the EU on behalf of its members.”

Brexit refers to ongoing negotiations between the European Commission and the British government on a draft agreement for the United Kingdom to leave the European Union.

Britain is one of 28 members of the EU, which is comprised of several treaties. For example, EU has a customs union through which goods flow freely, it negotiates free trade agreements on behalf of its members and EU citizens have the right to seek employment in EU nations other than their own.

If no Brexit agreement is reached, Britain will cease to be an EU member on Mar. 30, 2019 – two years after Britain officially gave notice of its intent to withdraw. About 52% of Britons voted to leave the EU in a national referendum in June 2016.

Brexit is “a risk that needs to be monitored if a client has significant operations in the U.K. and/or is using the U.K. as the access point into the EU,” Michael Loeters, a Toronto-based commercial broker, told Canadian Underwriter earlier. At the time, Loeters worked for BFL Canada Risk and Insurance Services Inc. He is now senior vice president of strategic clients and risk management at Prolink Insurance Inc. and a past president of the Toronto Insurance Council (formerly Toronto Insurance Conference).