UK BoE Brexit Contingencies
On Apr. 7, BoE governor Carney spoke on contingency plan for Brexit.
- On contingency plans for Brexit, and making financial system safer, simpler, fairer.
- UK System Features
- London’s strengths as financial center include people, law, language and time zone.
- A responsible center requires shared commitment, common standards, cooperation.
- As far as possible should do so in a way that keeps market open, so not hamstrung.
- Post-crisis banking system is safer, simpler and fairer to all, benefits being realized.
- UK regulators target efficient level of resilience, beyond global minimum standards.
- Fragmentation Risk
- Globally face a choice; turn inwards and fragment or work together, expand system.
- FPC targeting post-Brexit level of resilience that is at least as great as now planned.
- Information-sharing between countries is fundamental to ability to monitor markets.
- Adopting global approach to freedom, regulation and markets, is road to prosperity.
- Outcome of Brexit negotiations, may be highly influential in determining path taken.
- Equivalence with EU
- Robust standards allow wholesale services' inclusion into bilateral trade agreements.
- EU and UK are ideally positioned to create system of deference to each other's rules.
- Have commitment to common minimum standard and open supervisory co-operation.
- Can be reinforced by independent peer reviews and a dispute resolution mechanism.
- Outcome consistent with UK aim of a new, comprehensive EU free trade relationship.
- On Apr. 20, 2017, FSB Chair Carney urged global reform cooperation, see #31941.
- PRA Use of Judgment
- Foreign firms in UK or passporting services may now come under PRA authorization.
- PRA judgments affect if a firm operates a branch or subsidiary, its range of services.
- Based on cooperation, and confidence in the standards to which others adhering to.
- As well as assurances on arrangements to address circumstances if things go wrong.
- UK Risks from Brexit
- Importance of planning for all eventualities, in context of UK departure from the EU.
- Risk to financial stability, in transition to a new relationship, and a new steady state.
- Include disruption of services, further weakening of investment banking profitability.
- Greater complexity in legal structures, has consequence on oversight and resolution.
- Followed FPC Mar. 2017 minutes, on risks from UK relationship with EU, see #31615.
- Firms to Report Contingency
- On Apr. 7, PRA CEO Woods also wrote to all entities with cross-border activity in EU.
- Said PRA expected firms to make contingency plans, for a range of Brexit outcomes.
- Ensure soundness of UK operation assured, mitigate risk of financial stability impact.
- Expressed concerns that level of planning is now uneven, and not sufficiently tested.
- Particularly a scenario of withdrawal, without a trade agreement in place on UK exit.
- Firms using passport to undertake UK activity may need apply for PRA authorization.
- Including subsidiaries of US investment banks in UK, doing EU business with passport.
- EEA bank branches with retail/SME deposits, to discuss need to establish subsidiary.
- Requested Plan Responses
- Required confirmation that senior management has considered the contingency plan.
- Include short summary of plan, assurance that they address wide range of scenarios.
- Inform PRA if need for new authorizations, e.g. to support restructuring of business.
- Firms to provide by Jul. 14, 2017, FPC will oversee plans and mitigate stability risks.
- FPC said alert, to the potential for greater complexity with firms’ business structure.
||BoE; EU CMSN; UK FPC; UK PRA
||B/D; Bank; IA; Ins
||Sp, Lt, 04/07/2017, Brexit
||Compliance; C-Suite; Legal; Operations; Registration; Risk
||European Union; United Kingdom; Cross-Border
||Banking; Fund Mgt; Insurance; Securities
Last substantive update on 04/07/2017