The European Central Bank (ECB) has said in no uncertain terms that it expects UK-based lenders to move staff and assets to the Eurozone if they want to keep serving the bloc’s clients after the Brexit transition period.
The Bank, which regulates the Eurozone financial system, told banks they could not use coronavirus as an excuse, amid concerns that staff are reluctant to move out of the City of London and other parts of the UK during the pandemic.
Britain is scheduled to leave the Brexit transition period at the end of December. This will mean the UK’s lenders will face new regulations in January.
Financial services have not been a focus of the trade talks. The EU has granted the UK “equivalence” on clearing, meaning EU-UK clearing of deals can carry on as normal.
But it is yet to do so in various other areas. That means UK-based banks have to move operations to the continent if they want to keep serving EU clients.
The ECB said today that most UK-based banks had already made the necessary moves. “The year-end risks for banks supervised directly by the ECB appear to be contained,” it said.
Big names such as Credit Suisse, Citi, and Morgan Stanley have already moved hundreds of staff to Frankfurt in Germany.
UK banks must be fully operational in EU after Brexit
Yet the ECB said some banks still needed to do more work. And it said that the coronavirus pandemic was not a good excuse for failing to move staff.
“It is important to note that remote working arrangements do not change the fundamental need to relocate staff to the EU,” the ECB said in a regulatory newsletter.
“Ensuring that banks have a physical presence within the EU to the extent necessary is a prerequisite for achieving prudent risk management and effective supervision.”
This increasingly firm line from the ECB has led to some grumbling in the City. Some critics have suggested the EU is taking advantage of Brexit to take business from London. Others say it is the logical result of quitting the EU’s markets.
The central bank signalled that it would ramp up scrutiny in the future. It said moving staff and assets “is only the first step”.
“The ECB also expects banks to be structurally profitable and operationally self-standing.” This means banks will be expected to not rely too heavily on UK or US-based units for things like risk management or IT services.
“Our message is clear: EU products and transactions with EU clients involving non-EU products should be booked in the EU.”