Hundreds of banks, insurers, fund managers and other major City firms have until Friday 14 July to tell the Bank of England how they intend to cope with a hard Brexit.
The order from the Bank was issued in April and has forced the financial industry to spell out plans that would allow them to keep operating in the “most adverse potential outcomes” – possibly by picking a rival EU centre from which to conduct business and rejigging the way they are currently structured.
The Bank wants to know how banks will react in all possible situations: the UK leaving the EU without a trade agreement, no implementation period, no co-operation over regulation and no so-called mutual recognition, which allows products to be sold cross-border.
The request for action plans is aimed not only at UK groups, but big US and Japanese banks that use the UK as their way into the EU, and the EU banks which operate in Britain through “passporting” arrangements, which might mean they need to apply to the Bank for authorisation to keep doing business.
The Bank has asked for summaries of plans of up to 20 pages for some of the firms. However, a number of largely UK-focused organisations are allowed to provide more succinct submissions.
Andrew Gray, head of Brexit at PricewaterhouseCoopers, who advises businesses on how to deal with the UK’s exit from the EU, said he expected banks to be providing “observations about what consumers they could continue to serve, and where they would see the problems and how they would solve them”. He added that each submission to the bank is also expected to set out “how the board of directors is being kept up to date”.
But, he said, it was too early for them to spell out the details of how many jobs might have to move abroad.
“While they are having to plan for hard Brexit, they don’t want to overcommit and spend money they absolutely don’t have to,” said Gray.
The City is awash with rumours about how many jobs will be affected and which financial centres in the remaining 27 EU states might benefit from the UK’s exit, especially if an outline transition deal is not set out by year-end. JP Morgan has indicated up to 1,000 London-based bankers will be relocated to Dublin, Frankfurt and Luxembourg, while Goldman Sachs – still constructing a new HQ in London – has said it will need more people in a number of EU centres, including Madrid, Milan and Paris.
Deutsche Bank is reportedly considering moving large parts of its London trading and investment banking operations to its Frankfurt base. Previously, up to 4,000 of its 9,000 UK-workforce have been reported to be at risk. Japanese banks Nomura and Daiwa are also said to have picked Frankfurt for some of their operations.
While the plans that the Bank’s regulatory arm, the Prudential Regulation Authority, is asking for are intended to be contingency proposals, there are fears they could be enacted at the end of this year if there is no more information about transition arrangements.
Andrew Bailey, chief executive of the Financial Conduct Authority, said last week: “It would be regrettable if firms feel they’re in a bind because they have to do practical implementation of contingency planning before they know the context in which they’re going to be working in the future.”
Stephen Jones, head of the new industry lobby group UK Finance, made a similar point. He said it would take time to reorganise legal contracts and set up trading floors by the exit date of March 2019.
“If transitional arrangements are not clear and agreed by the end of the year, it’s going to be very hard to stop the train that has already left the station in terms of the transfer of jobs, and the activity that underpins those jobs, to the financial centres within the EU,” said Jones.