The Frankfurt-based institution said “elements in a number” of relocation plans submitted by banks that use the UK as their gateway to the EU “did not fully meet” its expectations.
In a quarterly supervisory update, the ECB warned about “double-hatting” – where employees hold roles across different locations – and expressed concern about employees not being physically located in the euro area.
The ECB’s view may alarm the City of London, where banks are preparing for a hard Brexit – without any agreement on trade or access to the single market – and have warned that they are likely to implement plans in the first three months of next year without a transition deal.
The Bank of England has analysed the Brexit plans of 400 banks and concluded that 10,000 jobs could leave on day one after the UK leaves the EU, suggesting 75,000 roles may be lost over the long term.
The ECB said many banks wanted to transfer all their market risk back to a third-country entity, perhaps in the UK or the US, which it said it was “not comfortable” with. It added that banks needed to have permanent local trading capabilities and risk-management operations.
“Banks do not only need to be well capitalised and have sufficient liquidity and funding, they also need to have substance locally. In other words, there cannot be empty shells or letterbox banks,” the ECB said.
“It is not straightforward to draw a line between a well-established bank that is integrated into an international group and an empty shell that is overly reliant on group entities in third countries. Still, some of the relocation plans submitted seem to lean towards the latter.”
The central bank’s intervention came as a senior official at JP Morgan admitted the US bank was already in “execution mode” to beef up operations in Dublin, Frankfurt and Luxembourg.
Some “key people” had been told of their moves, Sally Dewar, head of regulatory affairs at JP Morgan, told the Lords EU financial affairs subcommittee. Clients would be informed about changes in by the end of March, she added.
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