LONDON — The UK’s top banking regulator warned that leaving the European Union without a transition deal could cause “significant issues” for banks and other firms.
Sam Woods, CEO of the Bank of England’s Prudential Regulation Authority, said the regulator received 401 responses to a call for Brexit contingency plans from the firms it supervises.
Woods said a cliff-edge Brexit would pose a risk to financial stability, and proposed a transition period.
“Some form of implementation period is desirable, in order to give UK and EU firms more time to make the necessary changes to adjust to the UK’s new relationship with the EU in an orderly way,” Woods said in a letter published by the Treasury Select Committee.
Woods also said the PRA faces a “material risk” to its mandate to supervise banks, and that Brexit places “an extra burden” on the regulator’s resources. The central bank expects a surge in registrations for new entities in the UK, with the financial passport that allows British-based firms to operate in the EU coming under threat.
Banks are beginning to make preparations for a hard Brexit, in which the UK crashes out of the EU in 2019 with no trade deal with the 27-nation bloc. And financial centres across the EU — including Frankfurt, Paris, Dublin, and Luxembourg — are battling to attract financial services work moving out of London as a result of Brexit as a result of expected legal changes that will make operating in the EU out of London tricky.
Deutsche Bank CEO John Cryan said in a video announcement on July 11 that the bank “will assume a reasonable worst outcome” from the UK’s talks with the European Union, according to a Bloomberg News report.
“The worst is always likely to be worse than people can imagine,” Cryan said.