Bank of England crackdown on EU relocations caused by Brexit
Bank of England demands lenders seek approval before relocating UK jobs or operations to EU, after concerns that EU regulators are asking for more than necessary for stability financial post-Brexit.
The BoE has adopted this position – described by a senior banker as “increasingly clumsy” – after hearing several demands from the European Central Bank which it deems excessive and beyond what is required from a point of view. prudential view, according to people familiar with this decision. . Governor Andrew Bailey has taken a personal interest in the matter, they added.
British politicians and regulators have long feared that their European counterparts could poaching attempt as many financial services activities as possible under the pretext of repatriating a solid oversight of all financial activities linked to the euro. They fear the loss of associated jobs, tax revenues and prestige.
However, the BoE’s new stance has been criticized as “overbreadth” of regulation by international bankers, who feel caught between the politicized demands of the UK central bank and the ECB’s single supervisory mechanism.
“Being informed in advance of the banks’ plans is one thing, but requiring regulatory approval first is another,” said a senior adviser at a US bank in London.
The BoE and the ECB declined to comment.
The move also risks further fueling tensions between the UK and Europe over delicate political negotiations over their post-Brexit relationship for financial services.
Last week Britain and the EU agreed to create a new “Talking shop” on regulatory cooperation, but the EU has yet to say whether it will grant ‘equivalence’ status to UK regulations. Under this mechanism, the EU would recognize UK financial rules as equivalent to its own and vice versa, which would restore to London some of the direct access to the bloc it lost after the split.
Banks that are seen as taking unnecessary risks may have their regulatory capital requirements increased by the BoE Prudential Regulatory Authority. The new BoE requirements apply not only to British and European banks, but also to those in third countries such as the United States or Switzerland. In the past, they used London as a base to “bring” their financial services to the continent.
Brexit caused the UK to lose this unrestricted access and as a result many lenders have set up or stepped up their operations within the EU, notably in Paris, Frankfurt and Amsterdam.
While London lost large chunks of euro-denominated stocks and derivatives to Amsterdam, there was no job or income outflow from London that some had predicted. EY estimates only 7,600 UK jobs and £ 1.3 billion in assets have moved to the continent.
EU regulators have insisted that banks cannot operate small ‘brass’ entities inside the bloc, with senior executives taking risks such as traders and officials. compliance remaining in London.
The BoE’s Prudential Regulator accepted this position and, as Brexit approached, asked lenders to develop detailed models of what their business would look like initially and over a longer period. These were known as “day 1” and “day 2” plans.
However, the BoE now believes the EU is trying to force the banks to go beyond the agreed “day 2” schedule, people familiar with it. The PRA is concerned that “ad hoc” requests to transfer more business and leadership could compromise the security and soundness of the operations of London-based lenders.
One example under review is that the SSM has suggested that some major U.S. banks run only one trading desk to handle all transactions of a particular financial product in the same time zone, one said. people.
It can come from the push of the ECB prevent banks from making excessive use of a controversial technique known as back-to-back operations which allows them to shift the risk of transactions from the EU to a parallel operation UK.
A person briefed on the matter said the ECB was not looking for banks to do more than stick to their Brexit plans under “target operating models” agreed with supervisors.
Andrea Enria, President of Supervision at the ECB, told the European Parliament last week, supervisors were still in talks with banks “to make sure that in the post-Brexit world, they allocate enough staff and assets to institutions within the banking union”. He said this was “necessary to ensure adequate management of risks both within and from Europe”.
Additional reporting by Martin Arnold in Frankfurt