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20 May 2018

Financial Times: Big banks boost Brexit budgets

Big banks are increasing their budgets for dealing with Brexit, as they stick to a March 2019 deadline to transfer parts of their businesses from London despite the 21-month transition deal struck between the UK and EU earlier this year.

Senior executives at three large lenders said their organisations now expected to spend more than £100m on plans to reorganise their businesses after Britain’s departure from the EU. Two said the costs, which covered everything from consultants’ fees to planning teams’ salaries and technology, had risen because of prolonged uncertainty about how Brexit will pan out.

Consultants said they had seen rises across several banks and that it was “not unusual” for big banks to have budgeted £100m-£200m for Brexit costs this year, in addition to the £10m-£30m they had already spent since the June 2016 vote to take the UK out of the EU.

Banks hope to move minimal numbers of people and continue to manage the risk of their EU trading books through London but regulators have yet to approve this “back-to-back” model that banks already use to consolidate risk for some asset classes in single locations. Uncertainty over the outcome has forced banks to devise many strategic plans, adding to the Brexit planning costs.

One of the executives said the transition would add to the costs of Brexit planning but deliver limited benefits.

The rising costs are generating frustration, even as the big US banks enjoy some of their best profits in years. “We have to spend on things that give no further functions to our customers,” he added. “This is helping no one, at the best they get what they had before.”

Tom Groom, a global banking and capital markets partner at EY, said banks began increasing their Brexit budgets last October and November.

“Typically banks’ envisaged spend breaks down into three areas,” he said. “Achieving the authorisations necessary for their post-Brexit solution; creating the operating model for their Brexit solution including the required people, processes, technology and premises; and achieving the migrations, transfers of clients, people, business and assets as necessary.”

He said the “vast majority” of spending goes towards creating the operating model for Brexit, within which technology is “typically the biggest spend”. Banks have to install technology for their trading businesses in a second EU centre, typically Frankfurt or Paris.

Full article on Financial Times (subscription required)

© Financial Times

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