The sun may be out over the City of London, but there are some storm clouds looming in the shape of the European Banking Authority who have proclaimed that banks’ Brexit planning is inadequate.
This comes after similar messages earlier this month from the deputy governor of the Banco de Espana who warned that temporary rule waivers during the transition period should not be assumed.
The EBA has cautioned that UK assets could carry higher capital charges and with time running out, should not rely on a transitional agreement to complete their Brexit programmes with the promise of extra cost in the long-term.
The EBA is also standing firm in their attempt to prise banking business away from the UK and into the arms of European financial centres.
This gloom contradicts directly with the Bank of England’s sunnier outlook, with their promise of regulation to underpin any future EU/ UK agreement.
But with time running out and March 2019 just 276 days away, it may simply be that banks run out of time to complete their Brexit programmes.
Add this to the City of London’s statement that the sheer volume of financial contracts requiring re-papering being beyond the industry’s capacity – including £26TRN of derivatives contracts – may mean some nasty surprises come March.
While the Financial Conduct Authority and the Bank of England have sought to resolve the legal discrepancies, the EBA has warned of increased capital requirements for UK exposures or derivatives cleared through non-EU entities and has requested that banks consider their strategy and plans for future EU27 and UK trading.
Catalyst’s view remains the same: prepare for the worst and hope for the best (or at least the not so awful). But above all, watch that clock: it’s high time to make the necessary strategic decisions for full-operability come March 2019.
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Note: This opinion piece was first published by Catalyst prior to the Sionic merger