The European Central Bank is talking to banks looking to move some operations from London to the euro zone following Britain’s decision to leave the European Union, ECB board member Sabine Lautenschlaeger said.
Bank of England Governor Mark Carney meanwhile warned that lenders could start shifting activities in late 2017 if a “hard Brexit” looks likely and if the British government begins the divorce process in March as indicated.
Banks are looking for ways to ensure they retain the ability to easily sell their services into the EU — a market of 450 million people — after Britain leaves.
That means some lenders may opt to shift enough assets and operations to a country in the euro zone to ensure they qualify for supervision by the ECB.
“We have already many banks asking for interviews and meetings so that they can identify where are our pressure points and where our methods differ from PRA methods,” Lautenschlaeger told a conference in Frankfurt. “For sure we are preparing.”
The Bank of England’s Prudential Regulation Authority (PRA)is currently the primary regulator for the European operations of most US and Asian banks, as well as British lenders.
Speaking in London, Carney said banks and insurers were making contingency plans in case Britain loses a lot of its access to the single market but that it would be “precipitous” for them to take final decisions now about what Brexit means.
He said banks may start to relocate about 1-1/2 years before a British departure from the EU if a “hard Brexit” looks likely.
Prime Minister Theresa May has said she wants to begin the two-year process for negotiating Britain’s exit by the end of March, although that schedule might be delayed by a court decision that parliament should approve the launch of talks.
The government’s likely stance in negotiations — particularly how it will balance a desire to curb immigration with retaining access to the single market — remains unclear.
The government is deeply divided over its plans for Britain’s future relationship with the bloc, according to a memo for the government leaked to the Times newspaper.
Goldman Sachs had said it is considering shifting some operations to Frankfurt as a result of the June 23 Brexit vote, which could mean banks lose their passports or automatic right to do business in the EU.
On Monday, Germany’s Finance Ministry said it is fielding an increasing number of information requests from financial institutions considering a move to Germany from Britain.
Lobbyists say the City’s open access to the EU market is worth about 11 billion euros a year to the British economy and is crucial for the financial hub of London.
Banks are keen to retain passporting rights and have been unsettled by comments by May that appeared to prioritise capping immigration.
Top bankers said last month they could start moving staff abroad as early as next year if there is no clarity on whether Britain will retain single market access.
“We have a working group, a task force which looks into all the different scenarios, thinking about what it means with regard to passporting or non-passporting, authorization, model approval,” Lautenschlaeger said.
It is also looking into “what kind of preparation can be made with our colleagues at the PRA,” she added.