Non-European banks should not presume that Britain will receive a transition period after its official departure date next March, warned the European Banking Authority.
Rather they should plan on a hard Brexit and hurry up to submit their applications to allow for operational units in other EU countries.
“Progress in the preparations of financial institutions for the potential departure of Britain from the EU without a ratified withdrawal agreement in March 2019 is inadequate,” the banking regulator said in an official statement Monday. “The necessary mitigating actions take time, and should be pursued without further delay.”
This is especially true for foreign banks that will need to relocate out of London in order to keep doing business in the EU. Their full applications should be in by the end of this month, authorities said. Only then can they be sure to receive the necessary approvals in time.
“This should be a wake-up call,” EBA director Piers Haben said in a statement. “Time is running out, in some cases it has run out.”
Take nothing for granted
Many banks seem to be assuming either that there will be a transition period or that there will be some type of miracle to shoehorn banks into the EU, the agency said. “Firms cannot take for granted that they continue to operate as at present nor can they rely on as yet unrealized political agreements or public policy interventions,” said Andrea Enria, chairman of the EBA. “Risks, capacity and legal implications must be examined and addressed.”
As for a transition period, nothing of the sort has been decided, despite both sides having raised the possibility. Even the European Central Bank’s supervisory authority and Germany’s central bank, the Bundesbank, have recommended that banks plan for a “hard Brexit” — that is, an exit where Britain surrenders access to the EU’s customs union and the single market.
Banks leaving London
Nearly 20 banks, mostly from the US and Japan, have decided to transfer their EU business from London to Germany, either by setting up or expanding a unit there, mostly in Frankfurt. The German financial capital is competing with other EU centers — notably Dublin, Paris, Amsterdam and Luxembourg — to land the new jobs in the expected exodus from London.
The London-based EBA also warned banks they have a duty to communicate to their customers what the impact will be if Britain exits with a transition agreement. They should inform their regulators what steps they are taking in that regard.
Even the EBA itself has to move. In a drawing of lots between Paris and Dublin last November, the French capital was chosen as the new home for the banking authority.
Back in March, however, London banks heard somewhat contradictory advice from the Bank of England. The deputy governor for prudential regulation, Sam Woods, reassured banks that the government was preparing legislation for a “temporary permissions regimes” to allow them to continue doing business in London in the “unlikely event” there is no withdrawal agreement. In other words, “a backstop will be available.”
The discrepancy prompted some British critics to see the latest EBA warning as a cynical bit of scaremongering by an EU institution.
Darrell Delamaide is a writer and editor for Handelsblatt Global in Washington, DC. To contact the author: email@example.com.