Bank of England tells financial firms it’s business as usual during Brexit transition
The Bank of England said today that financial firms should take a business as usual approach and assume they will be able to carry on operations as normal until the end of the Brexit implementation period.
Last week, the EU’s chief negotiator confirmed an agreement had been reached on a Brexit transition deal, which will last until 31 December 2020. The deal was green lit at a summit of EU leaders.
Read more: Finance jobs to be moved due to Brexit now half of an earlier estimate
In light of the agreement reached at the EU Council, the Bank said it considered it reasonable for firms currently carrying on regulated activities in the UK by means of so-called passporting rights, or the EU framework for central counterparties, to plan that they will continue “much the same way as now”.
So clearing houses and lenders should be able to use their existing licences until the transition period comes to a close, without needing fresh regulatory approval.
At present, passporting allows financial services firms which are authorised in the UK to operate throughout the European Economic Area.
The government has committed to bringing forward legislation if need be to create “a temporary permissions regime” to allow companies to continue their activities in the UK for a limited period after withdrawal. The Bank said this provides confidence that a back-stop will be available.
Firms have been told to consider how best to make use of the additional time provided by the implementation period in their planning.
In an update today on the regulatory approach to preparations for Britain leaving the EU, the Bank welcomed the Brexit update and said its approach to preparations rested on the presumption that there will continue to be “a high degree of supervisory cooperation” between the UK and the bloc.
The BoE said:
This reflects the UK’s financial system’s role as both a national asset and a global public good, bringing shared risks as well as wide benefits.
Reaction: “Much-needed clarity”
Simon Lewis, chief executive of the Association for Financial Markets in Europe welcomed the guidance from the Bank of England.
He said:
We also welcome the publication of the final policy on the authorisation of branches of international banks, providing further clarity for banks. It will now be important for the UK and EU regulators to put in place cooperation arrangements to support this.
While this additional regulatory clarity is very helpful, the approach of the regulators in the EU27 will also be key in achieving the objective of an orderly withdrawal. We hope that over the coming weeks, much-needed further clarity can be provided on issues such as contractual continuity, access to financial markets infrastructure and data flow.
UK Finance chief executive Stephen Jones said the update provided “much-needed clarity” around transition arrangements.
“The impetus is now on EU regulators to follow suit, and for both sides to work together on cross-border models of supervision that businesses on both sides of the Channel can rely on throughout the implementation period,” he said. “Without similar assurances from EU regulators, UK-based firms serving customers in the EU will be forced to continue implementing costly contingency plans.”
Gary Campkin, managing director, external affairs and strategic issues at TheCityUK, said:
The Bank of England has taken positive action to support the political agreement on transition made at last week’s spring European Council.
This will help to give firms the reassurance that they need to avoid unnecessary and costly actions to prepare for an outcome that might never materialise. We now need European regulators to follow this example, which is critical to ensuring financial stability throughout the Brexit process and transition.
A study out earlier today by Reuters said the number of finance jobs due to be moved because of Brexit by March 2019 has shrunk substantially in the past six months, with fewer moves out of Britain now expected.
According to its survey of firms employing the majority of UK-based workers in international finance, the number of jobs to be moved out of Britain – or created overseas – has dropped by half to 5,000 roles.
Some banks had lowered the forecast for jobs they need to move as they weigh up how much of their operations they will actually need in the bloc if Britain loses access to the Single Market, while progress in talks with the EU have also had an effect.
Read more: Passporting: What you need to know