German regulator tells banks: ‘speed up relocation plans’

UK-based banks with contingency plans to establish EU hubs in Germany after Brexit have been told to speed up their relocation plans by the head of the nation’s financial regulator.

Banks warned to increase speed of relocation plans

In a speech at a conference in London on Tuesday, Felix Hufeld, president of BaFin, said City financial firms were at increasing risk of confronting a Brexit “cliff edge” given the lack of progress in negotiations so far between Britain and Brussels.“Negotiators have not made sufficient progress on the designated key separation issues,” he said. “For the time being, we therefore have to assume that the UK will not be a member of the common market or anything close to it following Brexit.“There are only 18 months to go before that happens, possibly leading to a so-called cliff-edge situation.”Mr Hufeld said that while BaFin was ready to offer assistance to any financial companies seeking to relocate to Frankfurt or elsewhere in Germany, he said the closer the Brexit date came, the organisation’s resources would become increasingly stretched.“Some time ago we set up virtual structures for this with dedicated teams to act as permanent points of contact for an institution’s authorisation procedure,” he said. “But we only have limited resources, too, of course. So, as the saying goes, it’s first come, first served.”Mr Hufeld said the UK’s departure from the EU “certainly won’t be a piece of cake” and that continental regulators needed to be ready with temporary measures to prevent market distortions in case British-based banks suddenly faced the future without a Brexit deal in place.

Establishing EU regulation for UK businesses

He also insisted that UK financial firms would not be allowed to establish EU hubs that were simply empty shells. “Banks that are planning a comprehensive division of work between offices in London and the EU need to transplant and split up their entire ecosystem established over the years – that means IT infrastructures, knowledge, processes and people,” he said.

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Banks that planned to save costs by managing in London risks from trades undertaken at new EU hubs must have “adequately” trained risk management staff in place and would have to strike the right balance for outsourcing hub activities to London, he added.“What is not allowed is for the subsidiary in the EU not to have an adequate control system on-site, and to therefore be dependent on the sister or parent company in London in order to fulfil the necessary control functions,” Mr Hufeld said.The EU is considering legislation that would, as a last resort, force UK clearing houses handling substantial amounts of euro interest rate swaps – 95 per cent of which are currently cleared in London – to move to the EU if they still wanted to serve continental customers after Brexit.Mr Hufeld insisted that, one way or another, EU standards must be enforced for clearing euro-denominated contracts outside the EU.For related news and features, visit our Brexit section.Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online Directory  

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