BY Fraser Tennant
Brexit will be “hard” and pose “complex” operational and transformational challenges for banking services in the European Union (EU) and beyond, according to a new report compiled by PwC on behalf of the Association for Financial Markets in Europe (AFME).
“The report, ‘Planning for Brexit – Operational impacts on wholesale banking and capital markets in Europe’, aims to provide policymakers and other industry stakeholders, both in the EU27 and the UK, with a fact-based analysis of how these challenges are likely to affect the financial services industry”, said the AFME in a statement.
To compile the report, PwC gathered information from previous case studies and from 15 banks spanning a range of sizes, activities, origins and legal entity structures. They include those EU27 headquartered, UK headquartered and non-EU headquartered banks.
One of the key findings in the report is that the Brexit transformation will be highly complex for wholesale banks as it contains many interdependent activities. Those firms providing a significant proportion of current industry capacity need to execute transformation programmes which will extend beyond Article 50 timescales. In some cases this may be up to three years after Brexit has been completed or even longer if the post‐Brexit trading relationship between the EU and UK remains unresolved for a protracted period.
Furthermore, in executing their transformation programmes, banks will be heavily dependent upon timely approval of licences by their new EU regulators – a critical step in the implementation of new business models which is likely to occur at a time when regulators will see a peak in requests following Article 50 activation.
In order to assist the wholesale banking and capital markets industry support European corporates and continue to help growth across all of Europe, the report recommends that policymakers: (i) clarify with each industry participant as soon as possible the structure of any interim business models that may be deemed acceptable immediately post‐Brexit; and (ii) clarify as soon as possible any future permanent terms for the provision of wholesale banking and capital markets services between the UK and EU post‐Brexit.
The report also states that, following Brexit and agreement of any new market access arrangements, an implementation period of at least three years must be provided to allow banks to complete their adaptation and 'grandfather' transactions that are in force at the time that the UK leaves the EU.