Fears bank plan demand will speed up 'Brexodus'
European and UK regulators risk inadvertently hastening the loss of some banking operations from London by pushing lenders to make detailed plans for the worst-case Brexit scenario, sources have said.
Senior finance industry executives are concerned Bank of England and European Central Bank demands for full contingency plans may spur the relocation of activities from London to the continent.
As the UK prepares to quit the European Union by the end of March 2019, firms seeking continued access have been asked to consider the approvals needed to set up a subsidiary in time.
The pressure illustrates a delicate balance for regulators between ensuring there are plans to maintain financial stability without spooking banks into relocating some business.
The Bank of England's Prudential Regulation Authority has written to lenders and other financial companies giving them a July 14 deadline to set out their plans, while the European Central Bank said last week it takes at least six months to win a banking licence.
"You're going to see an acceleration of real activity around these project plans," said Andrew Gray, head of Brexit for UK financial services at PwC in London.
"Regulators are all gently upping the pressure on the boards and branch managements to start to execute on some of their plans. Firms may not want to do this, but they all now recognise they've got to." Foreign bankers in limbo are already asking to relocate.
In pushing firms to update or complete their contingency plans, regulators risk bringing forward the implementation of those arrangements where the company sees some benefits in being the first to move. Those advantages may be in terms of grabbing scarce office space in the Eurozone city of choice, as well as moving and hiring the right staff.
The uncertainty is worsened by the relatively limited period to prepare for the outcome of negotiations between the UK and EU, according to Rob Aird, a partner at law firm Ashurst.
"Unless there is a very clear pronouncement in very short order about what the transitional arrangement will look like, people will start to vote with their feet and start to get things set up," Mr Aird said. "The risk is that there may not be any clarity until after the German elections in September."
A Bank of England official declined to comment. (Bloomberg)