ECB set to force more relocations from UK
More senior figures in UK-based investment banks could be forced by the European Central Bank to relocate to post-Brexit hubs established in the eurozone.
20 May 2022The move has been revealed by Andrea Enria, head of supervision at the ECB, who says that too many of the hubs are "empty shell structures", whose eurozone activities are still being supervised by staff based in, primarily, London.
Mr Enria headed a 'desk mapping' review of 264 trading desks set up in the eurozone after UK financial services lost 'passporting rights' to operate throughout the EU because of Brexit, and found that 21% “warranted targeted supervisory action”.
“For the desks identified as material, we will issue individual binding decisions to the incoming banks,” he wrote. “The ECB is not setting specific targets for the relocation of banking business to the euro area.
“Instead, we want to ensure that incoming legal entities have onshore governance and risk management arrangements that are commensurate, from a prudential perspective, with the risk they originate.
"The extent of the actual relocation and specific booking configuration will depend on the current set-up of each bank."
Bloomberg commented: "Almost six years after the UK voted to leave the EU, banks are still sparring with regulators over the structure of their business in the bloc.
"While many investment banks are reluctant to shift away from London given its deep liquidity and talent pools, the ECB wants to have oversight over the financial risks for the European Union that are embedded in the balance sheets of global banks.
"Global lenders have already shifted hundreds of billions of dollars in assets and thousands of jobs from the City of London to locations such as Paris, Frankfurt, Dublin and Amsterdam. Still, that’s a fraction of some estimates made shortly after the (Brexit) vote."The desk mapping exercise does not mark the end of the ECB investigation into eurozone hubs. “Investigations into credit risk-shifting techniques, the reliance on parent entities for liquidity and funding, and internal model approvals are still ongoing,” Mr Enria wrote.
"It is our duty to protect the depositors and other creditors of the local legal entity, prevent the disruption of banking services and safeguard broader financial stability in our area of jurisdiction."
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Mr Enria headed a 'desk mapping' review of 264 trading desks set up in the eurozone after UK financial services lost 'passporting rights' to operate throughout the EU because of Brexit, and found that 21% “warranted targeted supervisory action”.
Investment banks could be forced to relocate post-Brexit
In a blog published on the ECB website on Thursday, Mr Enria said the review “found that the incoming banks do not yet retain full control of their balance sheets”.“For the desks identified as material, we will issue individual binding decisions to the incoming banks,” he wrote. “The ECB is not setting specific targets for the relocation of banking business to the euro area.
“Instead, we want to ensure that incoming legal entities have onshore governance and risk management arrangements that are commensurate, from a prudential perspective, with the risk they originate.
"The extent of the actual relocation and specific booking configuration will depend on the current set-up of each bank."
Global lenders started shift from City of London shortly after Brexit vote.
Mr Enria described the empty shell structures as “a very real concern". He said the ECB would now require banks to appoint a head of each eurozone trading desk, and put in place sufficient infrastructure and staff to manage risk locally.Bloomberg commented: "Almost six years after the UK voted to leave the EU, banks are still sparring with regulators over the structure of their business in the bloc.
"While many investment banks are reluctant to shift away from London given its deep liquidity and talent pools, the ECB wants to have oversight over the financial risks for the European Union that are embedded in the balance sheets of global banks.
"Global lenders have already shifted hundreds of billions of dollars in assets and thousands of jobs from the City of London to locations such as Paris, Frankfurt, Dublin and Amsterdam. Still, that’s a fraction of some estimates made shortly after the (Brexit) vote."The desk mapping exercise does not mark the end of the ECB investigation into eurozone hubs. “Investigations into credit risk-shifting techniques, the reliance on parent entities for liquidity and funding, and internal model approvals are still ongoing,” Mr Enria wrote.
"It is our duty to protect the depositors and other creditors of the local legal entity, prevent the disruption of banking services and safeguard broader financial stability in our area of jurisdiction."
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Read more news and views from David Sapsted in the Spring 2022 issue of Think Global People.
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