Banks must plan for ‘hard’ Brexit

Global banks must plan for a “hard” Brexit or risk breaching regulatory requirements and disrupting business, according to an industry report seen by Reuters, the first since Prime Minister May said she would take Britain out of the single market.
Banks’ transformation programs are so complex and lengthy that in some cases they may need to devise two-step interim contingency plans in order to mitigate the risks of disruption, the report says. It was prepared by consultancy PwC for industry body the Association for Financial Markets in Europe (AFME). 
The process will require more clarity from regulators in EU countries where banks might seek a new base and need approval of any interim business models, the report says, noting the lack of visibility on future trading relations between Britain and the EU with negotiations yet to begin.
The report analyzed information garnered from 15 banks of varying sizes and from different home regions on their Brexit planning measures. The findings offer stark reading on what lies ahead for banks as they attempt to devise strategies to cope with any impending disruption to their business once Britain leaves the EU, mapping out 25 key business activities that will be impacted from staffing to establishing new legal entities. Banks are already implementing “no regrets” contingency measures such as retaining legal entities, the report finds.
In order to adapt to the post-Brexit landscape banks will need to set in motion a wide range of interacting transformation programs ranging from restructuring legal entities, gaining regulatory approvals, connecting to new market infrastructure and moving staff to new locations.
Some banks’ contingency plans will be achievable within two years whilst others could take at least 4 years to implement, depending on their current European footprint.
A transition period of 3 years would alleviate some of the pressures posed in implementing the necessary changes as well as support from regulators in Europe to speed up license approvals and to avoid any uncertainty that could lead to duplication costs and avoidable disruptions.

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