LONDON (Reuters) - Banks from Britain must draw up plans showing how they will staff and operate their new bases in the European Union after Brexit to avoid ending up with “empty shells”.
It is the clearest sign yet that the shift in banking jobs from Britain may rise significantly from the modest 3,500 to 12,000 forecast in the short term by the City of London financial district.
About 20 banks have applied so far for licences to open bases or expand existing ones in the eurozone by March 2019.
Banks are seeking to staff the new hubs with the minimum number of people possible initially by conducting some of the operations from existing London bases. They would then make more strategic decisions later on, but EU regulators are challenging this approach.
“Each of the banks have to agree a glide path with regulators that sets out how, over the next two or three years, the bank will have a bigger substance, with more risk management capability, central functions beefed up and so on,” said Vishal Vedi, Deloitte’s financial services Brexit leader who is advising banks on making the move.
The European Central Bank, which supervises the main lenders in the eurozone and is a central player in setting conditions for the new bases, said it will prevent banks from creating token offices.
“To this end, the ECB will focus on five key areas when assessing licence applications,” an ECB spokeswoman said.
These are adequate local management capabilities; access to market infrastructure such as clearing; some hedging and trading capabilities; no full reliance on booking and hedging strategies based outside the EU; and provision of accurate data on local activities.
Initial eurozone licences allow some management of risks and “back-to-back” or booking of trades to continue in London, New York or elsewhere outside the EU beyond next March, Vedi said.
“The glide path refers to how the reduction of that will be achieved and what it will look like,” Vedi said.
An EU regulatory source said there were intensive talks with banks wanting to set up subsidiaries in the eurozone.
“We are asking them for early assurance by outlining proposals on how exactly they plan to structure their businesses in the next few years,” the source said.
“This may include outlining structures and processes for their risk management, how they will spread their operational capacities, and where their traders will sit.”
The pressure on banks in London to shift enough staff to EU hubs has not gone unnoticed by regulators in Britain, worried that too many top staff will relocate.
“If you are expanding your presence in Europe, the structures you put in place must enable us to supervise your UK business effectively, and ensure that you continue to meet our threshold (minimum) conditions,” Nausicaa Delfas, head of international strategy at Britain’s Financial Conduct Authority said last week.
“If you are relocating senior management, are you ensuring that appropriate senior oversight remains in the UK?”
Reporting by Huw Jones, editing by Louise Heavens