An autumn bank stampede to relocate?

10 July 2017

A string of UK-based banks and insurers has announced plans to set up “offices” around the EU, or to “go home”. What do they really have to do to achieve their goal of continuing their business in the EU – but cost-effectively?

So far, banks have announced most frequently a move to Frankfurt whilst insurers are more widely spread – triggering complaints from some countries about a “race to the bottom” in regulatory standards.

Even at this early stage, the EU regulatory community is responding to such charges and laying out some of the obvious ground rules. The comments are no more than one would expect (and hope) from prudent regulators – but do make some of the more extravagant claims from Leave campaigners look distinctly naïve already. After all, the EU is still struggling with the aftermath of the Great Financial Crash with continuing bank resolutions and liquidations.  It would not make any sense to allow a sizeable part of the EU financial system to be run by “brass plate” companies from a third country that had explicitly rejected abiding by EU standards and enforcement.

The European Supervisory Authorities (ESAs) have led the way:

• European Banking Authority (EBA): At the most basic level, the European Council has already decided the mechanics of the decision to move the EBA itself out of the UK, but the practical rules for banks will come from the supervisor - the Single Supervisory Mechanism (SSM).
• European Insurance and Occupational Pensions Authority (EIOPA) is “closely monitoring the developments and will publish in due course its guidance for national authorities on sound principles for authorisation and supervision,"
• European Securities market Authority (ESMA) has already announced a clear and tough line on “the outsourcing or delegation of certain activities or functions to UK-based entities, including affiliates”.  The opinion sets out nine principles:  No automatic recognition of existing authorisations; avoiding letterbox entities etc. It promises further detailed guidance for asset managers, investment firms and secondary markets.

From the UK side, the Bank of England stepped up the pressure on firms by demanding - very properly – that they explain to the Bank their plans for the UK’s departure from the EU covering all possible outcomes, including a hard Brexit.  The deadline was 14 July so the autumn is likely to be the moment when UK firms are forced to face up to reality.  To help dispel any “fog in the Channel”, the SSM has now run two Brexit workshops for systemic banks – one for UK banks wanting to relocate to the EU27 and another for EU banks wanting to maintain business activities in the UK. [...]

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© Graham Bishop