Brexit Impact on Financial Services
What to expect from March 2019
EU-UK relationship status: it’s complicated
Unity and expertise favors the EU on the negotiating table:
The EU has shown its ability to come together in times of stress and has a strong expertise in trade agreement, whereas the conservative party is weakened in the UK.
No separate status for the financial sector in the negotiation:
Both sides want to negotiate a global agreement encompassing trade, security and citizens’ rights. An approach that could favor the UK at the margin but weakens the City’s lobbying power in our view.
A newly designed partnership without EU passporting rights:
The UK is not seeking to copy another state’s status, nor to remain in the single market under EU passporting.
Banks and clearing to be the most impacted
Clearing activities likely to partly relocate:
Their systemic nature is key for the EU regulator who naturally wants to retain some control.
No easy way for banks, some front office relocation likely:
The EU regulator wants banks operating in the EU to have enough local independent power and skills to ensure adequate supervision. Some banks have already put estimates on the number of relocations.
Asset managers to face incremental regulatory costs:
The end of the UCITS framework for the UK will lead to some changes, but no deep transformation in our view. Asset managers will probably need local branches and more regulatory approvals to go through.
Operational, regulatory and capital challenges for insurers:
EU insurers may incur charges depending on how they currently operate in the UK, with new regulations and capital constraints potentially driving additional costs.
Any bank that operates in the euro area must be a “real” bank. And a “real” bank has adequate local risk management, sufficient local staff and operational independence.
ECB Supervisory board, 4 May 2017, Technical workshop for banks considering relocation in the context of Brexit