LONDON/BRUSSELS(Aug 14): The European Central Bank blasted banks for slow-walking their Brexit preparations, telling them to move additional staff and resources to the European Union in case Britain leaves without a deal on Oct 31.
The central bank said firms have transferred “significantly fewer activities, critical functions and staff” to their EU operations than originally foreseen, according to a statement on Wednesday. The ECB said some banks are falling short of their supervisory expectations and can’t continue to rely so heavily on servicing EU clients from their branches in the U.K.
With the Brexit date postponed from March, several financial-services firms in London refrained from building up further reserves in the euro area as demanded. Goldman Sachs Group Inc and Standard Chartered Plc are among global firms that delayed transferring several billion euros of capital outside the U.K., people familiar with plans said in June.
The ECB requires banks to hold enough funds to ensure they can absorb potential losses at their European units. Banks in the region rushed to set up subsidiaries in the euro area and negotiated the capital levels required to do so with the ECB. In its push on Wednesday, the supervisor also reminded firms to keep building “local risk management and governance structures.”
The statement comes as the chances rise that the U.K. crashes out of the EU with no deal; Prime Minister Boris Johnson has promised to leave Oct 31, “come what may”. While banking regulators have said that firms are prepared for the disruption that could follow, the EU for months has told firms they need to keep building operations in the 27 remaining member states of the bloc to keep servicing clients there.
The industry is “as prepared as it can be with respect to the steps that it can take unilaterally,” Conor Lawlor, director of international and Brexit policy at trade group U.K. Finance, said in an emailed statement. He urged EU authorities to allow U.K.-based lenders to continue serving European customers for a limited period in a no-deal scenario.
Financial firms were also told by the ECB to make sure they have sufficient access to critical market infrastructure, which could be disrupted due to Brexit. Many EU-based banks currently use derivatives clearinghouses in London for their trades and as things stand, access will end next March.