The EU's finance watchdog is closing loopholes for UK banks looking for an easy escape from Brexit

A road traffic sign is in front of the Union Jack and the European Union flag hanging outside Europe House in Smith Square, London. British citizens should be able to choose to keep various benefits of EU membership including the freedom of movement after Brexit, the European Parliament's chief negotiator has said.Yui Mok/PA Wire/PA ImagesBrexit could boost specific business at management consultancies.

LONDON — UK-based banks seeking a foothold in Europe after Brexit will face a tough assessment before they are allowed to set up on the continent, one of the European Union’s top banking supervisors said.

Sabine Lautenschlager, vice-chair of the Frankfurt-based Single Supervisory Mechanism, a unit of the European Central Bank, said applications for European licences will be scrutinised closely.

Banks that use the UK as a base risk losing the so-called financial passport they use to access customers in the European single market after the Brexit negotiations.

The talks start on Wednesday, when the UK is due to trigger Article 50, and will take up to two years. 

“The most obvious option would be to obtain a banking licence in an EU country in order to regain the passport,” Lautenschlager, said at a press conference.  

“We will not accept empty shell companies”

“It is the ECB that grants licences in the euro area. And to be clear: we will only grant licences to well-capitalised and well-managed banks,” she said.

“We will not accept empty shell companies. Any new entity must have adequate local risk management, sufficient local staff and operational independence.”

She added that the ECB will use phase-in periods to make sure that lenders comply with the rules, which may take up to two years to pass through.

Lautenschlager said executives face a series of interviews to win the ECB’s approval. “So from our point of view it is at the core to have many, many different interviews, getting the business plans for several years to come,” she said.

“How banks want to structure their activities, how they want to grow, what kind of booking they want to do, what kind of risk management. It’s nothing that you can do in a few weeks, but where you need an in-depth analysis from our point of view.”

Prime Minister Theresa May’s government has raised the possibility of a so-called “hard Brexit,” which prioritises immigration control over membership of the European single market.

Such a move would also lead to the automatic loss of the City of London’s EU financial passport, which could be devastating to the City of London. The Financial Conduct Authority (FCA) said earlier this year that 5,500 UK companies rely on passporting rights, with a combined turnover of £9 billion. 

HSBC, JPMorgan, and UBS have all warned about job relocations. Jamie Dimon, CEO of JPMorgan Chase, told Bloomberg at Davos that the bank will likely move more people than previously thought. “It looks like there will be more job movement than we hoped for,” Dimon said. The bank employs 16,000 people in the UK. 

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