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.

Regulators BoE; EU CMSN; UK FPC; UK PRA
Entity Types B/D; Bank; IA; Ins
Reference Sp, Lt, 04/07/2017, Brexit
Functions Compliance; C-Suite; Legal; Operations; Registration; Risk
Countries European Union; United Kingdom; Cross-Border
Products Banking; Fund Mgt; Insurance; Securities
Regions EMEA
Rule Type Proposed
Rule Date 4/7/2017
Effective Date 7/14/2017
Rule Id 31795
Linked to Rule :31615
Report Issue 4/15/2017
Report Section UK

Last substantive update on 04/07/2017