The heads of European supervision of the banking industry are continuing to insist that banks need to commit to setting up subsidiaries in continental Europe before the date of Brexit. The news comes despite the announcement earlier this week of a transition deal that is set to expire in December 2020.
The preliminary agreement still hasn’t been finalized with the Irish border dispute remaining a cornerstone. EU banking regulators have set out a deadline for the end of June this year for the firms that are willing to operate in Europe to apply for Eurozone banking licenses.
EU Authorities at Odds with Bank of England
The pressure from European authorities comes around the same time as the Bank of England issued a guidance that provides banks with additional leeway precisely because of the transition deal.
Despite the tentative agreement, European authorities seem determined to force London-based banks to get continental licenses. The 21-month transition deal that is set to expire in December 2020 is not legally binding until the Brexit deal finalized and ratified by both sides.
Legal uncertainty is forcing EU supervisory bodies such as the Bundesbank to adopt a harsher deadline tied to the date of Brexit – March 2019. For the German institution, anything but legal certainty doesn’t matter much.
Bundesbank’s Andreas Dombret said: “Many issues are still to be discussed and the transitional period is still not fully guaranteed. The phrase that ‘nothing is agreed until everything is agreed’ still holds true.”
Banks and Brokers Urged to Act Swiftly
For companies that are holding only a single operating license in the EU, time is running out fast. Retail brokerages in the forex industry are facing an increasingly difficult time amid the new regulatory requirements that are still not finalized by the ESMA.
At the same time, thousands of firms located in London that have operations both in the UK and in the EU27 need to expedite their plans for access to the single market. Basing their assumptions on a Brexit date in March 2019 seems like a reasonable course of action right now.
EU authorities are taking a conservative stance regarding financial institutions in a transition deal despite warnings that the efficient operation of the continent’s markets would be put into question.
The European Central Bank’s supervisory wing, the Single Supervisory Mechanism (SSM) is clear on the matter. Sabine Lautenschläger, who is the vice-president of the body, clearly communicated to financial institutions that they have until the end of the second quarter to apply for banking licenses.
Exceptions Only for The Strongly Committed
According to the SSM, only firms that present a detailed plan for relocation action would be allowed some leeway. The ECB’s banking supervisory body is in discussion with about 50 financial institutions about details surrounding their Brexit plans.
EU officials have been aiming to prevent a situation where companies are not taking the deadline seriously. The Bank of England has been urging UK companies to start implementing their contingency plans for Brexit at the end of the first quarter of 2018.