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Sam Woods, deputy governor of the Bank of England and CEO of the PRA, said that he expects that, depending on any developments in the Brexit negotiations, the PRA will see a large number of the ‘inbounds’ based in the European Economic Area, applying for authorisation on the assumption that access akin to their current passporting rights to operate in the UK will fall away.
“Time and negotiations will tell whether that assumption will prove correct,” he said. “If it is, authorisations are going to be a significant operational challenge for the PRA.”
He told his audience: “Going by recent debates, you could be forgiven for thinking that international banks and insurers have never had to operate across different currencies, legal systems and regulatory frameworks. They have always had to navigate the contours of geofinance. They were perfectly capable of dealing with the introduction of the euro – and the years of uncertainty about whether or not the UK would join.
Following the referendum, international banks and insurers have done what they always do with risks they don’t want to carry – they have hedged. The ‘outbounds’ using London as a base for continental operations are planning to beef up their existing EU operations or considering where to establish a new entity.”
He noted that the impact of this first phase of contingency planning on jobs will be relatively modest, adding that contingency planning is a sliding scale of increased commitment, investment and momentum through time.
Mr Woods said the PRA is also engaging with financial institutions, trade bodies, the Financial Conduct Authority and the government to unpick cross-sectoral problems. “The two uppermost in our mind are the need to ensure that existing insurance and derivatives contracts can continue post-Brexit, and that data can be shared within groups across the UK/EU27 border. It would be messy and difficult for all firms to try to self-solve for these risks and I hope that we can find suitable fixes as the Brexit negotiations progress,” he said.
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