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07 February 2018

Financial Times: British banks running out of time on post-Brexit EU access

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British banks are running out of time to guarantee they will be able to continue operating in the European Union after Brexit, according to the Vice-Chair of the Supervisory Board of the ECB Sabine Lautenschläger.

Sabine Lautenschläger, an ECB board member and vice-chair of the central bank’s Supervisory Board, said any British bank wanting to relocate to the euro area “should really have submitted its license application already”, and will have to do so by the end of the second quarter of this year at the very latest.

The UK’s negotiators are hoping to agree a deal that will ensure financial services firms maintain the maximum possible access to EU markets after the country leaves the EU, but Ms Lautenschläger cautioned that “we cannot be sure whether the transition period will happen”, so “banks must continue to prepare for any outcome, including a hard Brexit”.

In the event that the UK and EU do agree a transition period, banks “might be granted more time to implement their relocation plans”, Ms Lautenschläger said, but only if they have “already presented high-quality and credible plans”. Ms Lautenschläger said eight banks have already taken formal steps to acquire a new euro area licence, with a further four “planning to significantly extend their activities”.

In a warning to those banks, however, she repeated previous comments that eurozone regulators “won’t tolerate any empty shells”.

Some banks had hoped to rely on existing “equivalence” rules that would allow them access to eurozone markets without relocating the bulk of their operations. However, Ms Lautenschläger said “banks must be ‘real’ banks if they want to operate in the euro area”, meaning they need to build “sufficient local capabilities in areas such as pricing, trading, hedging and risk management”.

Her comments came as part of the ECB Supervisory Board’s annual press conference, where she was speaking alongside the board’s chair, Danièle Nouy.

Despite the additional complications presented by the UK’s impending exit, Ms Nouy said 2018 “offers the ideal opportunity” for banks in the wider EU to address some of their other problems, including lingering balance sheet weakness and high levels of non-performing loans.

Ms Nouy said “banks should use the good times to reduce NPLs. And the good times are now ...conditions are as good as they are going to get”.

The eurozone has struggled to achieve its long-sought goal of a full banking union, including a common deposit insurance scheme, as finance ministers in countries such as Germany and Finland demand stricter risk reduction measures.

Ms Nouy said on Wednesday that “banks have made some progress in reducing risks” and “we could therefore take EDIS [European Deposit Insurance Scheme] a step further”.

Full article on Financial Times (subscription required)

Introductory statements at the annual press conference on Banking Supervision

© Financial Times

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