European regulators have started informing investment banks which businesses and staff they must move to the continent, starting the clock on compliance as a long-running post-Brexit review comes to a close. Officials from the European Central Bank have been meeting banks in recent weeks and have given them feedback on its “desk-mapping” review, according to a person familiar with the matter.
The ECB has been probing international leaders’ footprints on the continent in the wake of Brexit. Leaving the European Union ended UK banks’ automatic right to trade in the EU under passporting rules. This meant they had to ensure they complied with regulatory requirements in each jurisdiction.
This included shifting more staff to the bloc from London. The relocating of staff to favourable EU cities had been a subject of discussion almost from the time the ‘leave’ vote won the referendum. I recall Dublin was considered one of the most favourable cities to relocate to with language being one of the big advantages.
However, the ECB said in May 2022, even after such length of time, that it had found evidence of shell offices and trading models with distant risk management. It said it would issue “binding decisions” telling banks which staff and products they needed to move.
All the banks involved have now received these decisions. Each will have between a year and two years to comply, depending on their individual requirements, according to the person familiar with the matter. Citibank Europe CEO, Kristine Braden, said at a Bloomberg conference in April the bank was moving people and products as it prepared to receive its ECB review results.
“As a result, there will be a lot of moves,” she told the event. However, other bank insiders have suggested the results do not amount to a radical shift. According to a person familiar with Morgan Stanley’s plans, the bank has had to move “tens” of people. “Have people moved? Yes. Is it a step change? No,” they said.
JPMorgan was not part of the review, as it had engaged early with the ECB and had moved and hired people to and within the European Union. USB and HSBC declined to comment. Goldman Sachs, Barclays, Bank of America and Citi did not respond to requests for comment.
International banks have already moved more assets to the EU than initially predicted, the ECB said in response to a request under EU freedom of information laws. The assets of the largest international banks relocated to the EU and directly supervised by the ECB stood at around 1.6tn euros at the end of 2022. This was higher than the 1.2tn euros it had originally agreed with lenders under ‘target operating models’ in 2018.
The ECB said it had already pushed back its time frame due to Covid-19 to ensure institutions “had sound risk management arrangements in place to manage their relocated business.” But the official desk-mapping review decisions have taken longer than some expected. The ECB was set to issue binding decisions for desks that present a “material” risk by the end of 2022.
“Decisions will be issued to the institutions in the course of 2023,” the ECB said in its response to a request for information. The response also revealed that international banks have only managed a “gradual” reduction in “dual-hatting”, which is where directors served on boards in multiple jurisdictions.
However, the central bank said “the number of banks in intense dialogue to this topic has significantly decreased due to the banks’ recent and wider-spread adoption of best practices.” (The writer is our foreign correspondent based in the UK)
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