Time is running out for London’s banks to apply for a European licence after Brexit, according to a stark warning from the European Central Bank (ECB), with stock brokers also in the regulator’s sights.
Speaking in London, Sabine Lautenschlaeger, a member of the bank’s executive board, said: “My message today to the banks is quite simple: the clock is ticking. Obtaining a licence takes some time, so don’t put off applying for one for too long.”
Banks in the UK have been able to rely on the rules of the Single Market to operate throughout the EU under Bank of England supervision, but that may change after Brexit.
The ECB has taken a firm line on supervision of UK banks, saying they will have to be regulated by European authorities post-Brexit, with licences only granted to firms that have significant operations within the EU.
Lautenschlaeger has herself previously said London banks would enjoy a transition period in which their Bank of England authorisations are treated as equivalent by European authorities.
However, this is founded on the assumption that banks eventually move a big chunk of operations to the EU and seek to be regulated there. Banks are currently “too relaxed” about applying, Lautenschlager said.
The warning comes as European regulators look to bring other aspects of the City's main functions into its remit, including the capital's prized euro-clearing crown.
The government has come under sustained pressure from business groups since the General Election to aim for a "softer" Brexit deal to try to fend off attempts to unseat the City of London as the main financial centre for Europe.
Lautenschlaeger added that the ECB may seek to extend the reach of its supervision after Brexit.
The ECB may try to regulate broker-dealers and third-country bank branches, Lautenschlager said. Any move towards regulating stock brokers would be made to avoid fragmentation of the market as different countries regulate the entities, she said.
Stock brokers are currently regulated in the individual countries, but the central bank could act to bring them within their scope if it deems banks are using broker-dealer structures to avoid regulatory scrutiny.
Other options on the table could also see investment companies and stock brokers regulated if the ECB deems them to be systemically important.