The EBA today said that financial firms in the UK who provide services to clients in the rest of the EU were not adequately prepared for withdrawal, and that cost-conscious firms are risking financial stability.
London-based firms are “delaying triggering the necessary actions” on Brexit contingency plans, it said in a statement. Firms should assess whether continued market access of EU firms to the UK, or vice versa, is “necessary or desirable”, which could result in “withdrawing from the relevant market”, the EBA said.
However, City bosses balked at the criticism. Miles Celic, chief executive officer of TheCityUK, said that London’s financial services firms have “had contingency plans in place for months” and have a “constructive, ongoing dialogue with regulators and government”.
Some in the City have expressed frustration with the lack of movement on the EU side to solve the key outstanding issues for cross-border trade, including ensuring that contracts continue to be legally applicable after Brexit.
Catherine McGuinness, policy chairman of the City of London Corporation, tonight rebuked European regulators for not matching assurances given by the UK to financial services firms.
“The Bank of England and HM Treasury understood that firms’ progress on contingency planning would be difficult to complete by the March deadline,” she said. “They took the practical and necessary steps to ensure it would be ‘business as usual’ for EU firms operating in the UK until January 2021.”
“We have not seen this move reciprocated by European regulators. Institutions such as the EBA could help move this forward, for the benefit of customers across the EU and UK.”
Celic added: “The single most helpful thing European authorities can now do right now is to engage urgently and seriously with the issue of contract continuity. The lack of progress by EU regulators on this vital issue is the most pressing item on the agenda.”
British firms serving EU clients currently rely on a financial services passport, meaning they do not have to be regulated separately in every EU country. The UK and the European Commission have yet to agree formally how trade, including the passport, will function during the so-called implementation period after the UK leaves the EU in March 2019.
Firms would have to create fully capitalised subsidiaries in another EU country to guarantee access to EU clients after Brexit if a deal falls through – at a significant cost.
“The time for the required actions to be taken is reducing,” said the EBA, which is itself moving from its Canary Wharf headquarters to Paris because of Brexit. Firms’ preparations for a “no deal” Brexit are so far “inadequate”, it added.
Andrea Enria, chair of the EBA’s board, said: “Firms cannot take for granted that they continue to operate as at present nor can they rely on as yet unrealised political agreements or public policy interventions.”
However, firms’ contingency plans have been complicated by the ongoing wrangling over the shape of the longer-term trading relationship.
Chancellor Philip Hammond last week accused the EU of attempting to “force” the UK’s financial services into the Eurozone.
A spokesperson for UK Finance, which represents British banks, said the regulators “should work together” on the “critical cliff-edge issues” facing the sector.
“Ultimately, we believe a no deal scenario must be avoided and efforts focused on securing an ambitious trade deal including coverage of cross-border financial services, to the benefit of customers on both sides of the Channel,” the spokesperson said.