EBA says banks cannot yet rely on transition period agreed in principle with Brussels.
Europe’s top banking regulator has warned the financial industry its preparations for Brexit are “inadequate” and urgently need pushing forward as Britain moves closer to leaving the EU.
Sounding the alarm two years after the Brexit vote, the European Banking Authority told City banks they needed to “rapidly advance” their planning for a hard Brexit – potentially putting the Bank of England at odds with the EU’s top regulator.
The EBA said banks could not yet rely on the transition period agreed in principle by Theresa May with Brussels, which extends Britain’s departure date from March next year to the end of 2020. While the deal should help maintain the status quo for City banks, it has yet to be formally adopted because it will form part of the wider Brexit divorce settlement.
In an opinion paper published on Monday, the top EU banking regulator said major banks should push ahead on the assumption that Britain crashes out without a Brexit deal in 10 months time.
Andrea Enria, the chairman of the EBA, said: “Firms cannot take for granted that they continue to operate as at present, nor can they rely on as yet unrealised political agreements or public policy interventions”
The comments are at odds with reassurances put forward by the Bank of England after May agreed to the terms of the transition deal in March, which was seen by the City as a key requirement for keeping jobs in London and helping banks to rearrange their operations to keep trading in Britain after Brexit.
Britain and Brussels have been at loggerheads over the future of the banking industry and matters of financial stability since the referendum two years ago, with City bank executives caught in the middle of the political tussle. Although London is the banking and financial hub of Europe, the City’s continental rivals such as Paris, Frankfurt and Dublin are vying to take business that becomes available in the wake of Brexit.
British banks, including HSBC, have warned they could move at least 1,000 jobs to the French capital after Brexit, while Barclays has picked Dublin as its new EU hub and Royal Bank of Scotland has said it could move more business to Amsterdam.
While the governor of the Bank of England, Mark Carney, has warned the fallout for the finance industry is the single issue that makes him most “nervous” from the number of potential problems a disorderly Brexit could cause for the UK economy, the Bank has previously argued that adequate steps in the UK have been taken to prepare the industry for Brexit.
There is growing frustration among senior British officials that European financial regulators have not gone far enough to prepare for Brexit. The UK government has said it will act to allow European firms to service financial contracts in Britain after Brexit, although no such reciprocal steps have been taken as yet by European authorities.
The Bank has said UK and EU legislation is needed to ensure continuity in contracts that span many years in some cases covering financial services such as banking and insurance. The EU has shown no willingness to legislate and the EBA said no public solution may be proposed or even agreed in time.
The EBA – itself in the process of moving from London to Paris because of Brexit – said banks needed to take greater steps to evaluate the risks to their balance sheets from cross-border contracts.
“It is imperative that financial institutions in the EU27 and in the UK identify potential exposures and risk channels that may be affected, and the possible implications of the potential departure of the UK without a ratified withdrawal agreement in place,” the EBA said.