Two years have gone by since the referendum on the European Union in the UK. In the meantime we know for (rather) sure that the United Kingdom is going to leave the EU on 29 March 2019 at midnight. What is going to happen next is for the moment open.
The withdrawal agreement has not been finalized yet and has stumbled on rather fundamental questions like the Irish border. Progress is slow in the negotiations and the October deadline has already been publicly put into question. A special last minute Brexit European summit is not excluded to try to hammer out a deal. Failure here would mean a dreaded disorderly Brexit without a transition period or indications on the content of a future relationship agreement.
A few months ago via sector specific notices the Commission has warned the financial services industry to be prepared for all scenarios, including this one. This week EBA has followed suit. These are not EU negotiation tactics as some across the Channel argue but basic risk management practices not to say common sense.
In its opinion, EBA’s warning is stark and clear: the authority “is of the opinion that this planning should advance more rapidly in a number of areas. Where planning is taking place, some financial institutions appear to be delaying triggering the necessary actions. The time for the required actions to be taken is reducing. Financial institutions should not rely on public sector solutions, as they may not be proposed and/or agreed.” The opinion continues: “Financial stability should not be put at risk because financial institutions are trying to avoid costs.”
The text dedicates a whole section to risk assessment and preparedness in fields like existing exposures to or contracts with financial counterparties, reliance on UK financial market infrastructures, data storage and transfer, reliance on UK markets for funding, … A second section deals with customer communication.
This opinion has been first and foremost addressed to EU national competent authorities (supervisors) to make sure that the entities under their watch are prepared. It is nevertheless as well a recommended reading for bank Boards and CEOs as well.
By Antoine Kremer, ABBL & ALFI Head of European Affairs