FRANKFURT/LONDON (Reuters) - Cross-border banks in London looking to shift operations to the euro zone after Britain leaves the European Union should allow at least six months for a new licence, the European Central Bank said on Tuesday.
The ECB is responsible for authorising banks in the single currency area, with the help of national regulators for small lenders.
Banks in London fear a "hard" Brexit with no access to the bloc's single market after 2019, and face pressure from regulators to avoid a "cliff edge" or abrupt termination in cross-border customer links, which could unsettle markets.
Authorities expect about 40 large international banking groups, currently operating their euro zone business out of London, to move subsidiaries or branches to the 19-member currency bloc.
"It usually takes six months from the applicant providing a complete application for a decision to be taken regarding a licence application," an ECB guideline released on Tuesday said.
This could be fast-tracked when an applicant asks for an extension of an existing licence.
"In any event, a decision must be taken within 12 months of the date of the application."
Financial centres Frankfurt, Paris, Madrid, Luxembourg and Dublin are all vying to attract banks from London, but all major euro zone lenders are directly supervised by the ECB to stop any national "sweeteners" being offered.
The "relocating to the euro area" guidelines reiterate some comments already made by ECB officials, such as establishing an "empty shell" in the euro zone to avoid moving many staff and operations from London would not be acceptable.
"The requirements for a well-functioning bank must be in place before an institution takes up any banking activities in the euro area," the ECB said.
"You should plan accordingly, in order to be sure to obtain your license on time."
It will hold a technical workshop on May 4 to explain its relocation policies further.
Banks in London have been asking whether they could still centralise their broker-dealer trading services in London after Brexit to save on costs of setting up new euro zone entities.
The ECB said banks should be capable of managing all material risks potentially affecting them "independently and at the local level", meaning there would be a need for a sizeable presence in the euro zone as a condition of getting a licence.
Banks use "internal models" or bespoke software vetted by regulators to calculate risks on their books - and therefore how much capital to hold.
The ECB said there will be a "limited period" in which new euro area banks might use internal models endorsed by UK regulators, but not yet approved by the ECB in a process that can take months of sifting through thousands of pages.
"This limited period will cease as soon as the bank’s model application has been approved or rejected," the ECB said.
Reporting by Andreas Framke in Frankfurt and Huw Jones in London Editing by Jeremy Gaunt