Dozens of London-based banks are expanding their European operations in order to continue doing business in the bloc after Brexit, under plans agre
Dozens of London-based banks are expanding their European operations in order to continue doing business in the bloc after Brexit, under plans agreed with the ECB. The eurozone’s top banking watchdog, however, said they risked being caught off-guard in the event of a no deal divorce on October 31, the official Brexit deadline. “So far, banks have transferred significantly fewer activities, critical functions and staff to euro area entities than originally foreseen,” the ECB said in a statement.The ECB now expects banks to speed up the implementation of their plans.”
The bank stressed “contingency plans for a no deal scenario” had to be fully implemented, including preparations for a situation in which UK assets are no longer covered by EU rules.
Among other areas where banks are falling short, the ECB listed the practice of back-branching – serving EU clients from UK branches even when there is no local business need, remote booking of trades and back-to-back hedging.
The ECB has already warned UK banks against finding loopholes around moving their staff via creative but controversial schemes such as dual-hatting, which involves drawing up two separate contracts for an employee – one for when they are in the UK and a second for when they travel to the EU.
It said in a report published last year that such practices “are expected to be used only in exceptional circumstances and in duly justified cases”.
London has been the EU’s undisputed financial centre for decades, and many experts say a no deal Brexit would be a nightmare for international financial institutions, especially those with a head office in the city.
Under a no deal scenario, Britain’s agreements with EU regulators would become void and banks would find themselves in a legal black hole, meaning they would be unable to continue doing some of their business across the bloc.
While Brussels has pledged to do its utmost to avoid a complete financial meltdown, its contingency plan is only a short-term solution designed to protect its own interests, and not London’s.
Conservative Prime Minister Boris Johnson has promised voters to deliver Brexit at the end of October with or without a deal, demanding that Brussels scraps parts of the existing divorce pact relating to the Irish border and agree to draw up a fresh agreement.
But the EU insists the legal terms of the deal cannot be rewritten, stoking fears among financial markets that the UK is headed for a messy, bitter divorce.
Many investors say a no deal Brexit would rattle the world economy, push both Britain and the EU into recession, rile financial markets and strip London of its position as the world’s top financial hub.
But Brexiteers argue that the British economy is strong enough to cushion the blow of a no-deal divorce, and would benefit in the long term from improved economic flexibility.