LONDON — Time is running out for banks to move staff and operations out of the UK and onto continental Europe post-Brexit, one of Europe’s top regulators said.
Sabine Lautenschläger, the vice chair of the Frankfurt-based Single Supervisory Mechanism (SSM) — which oversees the financial stability of euro zone banks — told the Financial Times:
“My message [to middle-sized banks] would be very clear: speed up. Make up your mind and contact us early so that we can have a discussion about your plans, about the expectations on both sides.”
“I believe the very big ones are quite well progressed in their planning,” she said.
“Many of them still need to make a clear decision over what kind of structure they want to adopt and what kind of location they want to have for their operations.
“It’s not yet too late, but I think these kind of decisions should be done pretty quickly because time is running out.”
Lautenschläger’s comments are important given that it is the SSM which gives approval to lenders applying for licences to set up EU hubs post-Brexit. Without the SSM’s authority, lenders will be unable to create new EU subsidiaries to deal with Britain’s expected loss of the financial passport.
A large majority of banks with bases in the UK are believed to be considering some form of hub on continental Europe once Britain leaves the EU to negate the loss of that passport.
The passport is essentially an agreement that allows banks with a base in the UK to access customers and financial markets in the (currently) 28-nation EU trading bloc. It includes a system of common financial rules that all countries in the passport network sign up to.
For example, a US or Japanese bank can set up a subsidiary in London and from there operate branches on the continent. If the UK loses the passport, those branches won’t be tethered to a country in the EU single market and therefore be unable to carry out the range of services they might want to.
The process for setting up a subsidiary in the EU is a long one, with Barclays’ CEO Jes Staley saying at a conference in April: “If you have to re-licence a branch in Europe and in that process get approval from the local central bank and begin to novate all the contracts from one branch to another, that process, given the complexity of the financial instruments, will take 12 months or 18 months.”
The UK set to leave the EU in March 2019, that window is closing rapidly.
Some banks have already pulled the trigger with three Japanese lenders, Daiwa, Sumitomo Mitsui Financial Group, and Nomura, all confirming in the last week that they will set up new post-Brexit bases in Germany’s financial hub, Frankfurt.