Brexit: latest state of play
The European Council’s decision on 10 April to extend the period for the United Kingdom’s withdrawal from the European Union (EU) until 31 October meant that a hard Brexit in mid-April 2019 was avoided. However, Brexit is not off the table. If the current withdrawal agreement is ratified, the transition period will still only run until 31 December 2020, at which point EU law will cease to apply to the United Kingdom. And a hard Brexit is also still possible on 1 November 2019 if the withdrawal agreement has not been ratified beforehand. Banks should therefore not lessen the pace of implementation of their Brexit plans, as the overall situation remains broadly unchanged. Rather, they should use the coming months to ensure that they are fully prepared.
Banks now need to focus their efforts on fully implementing their target operating models as soon as possible and, in any event, in accordance with the timelines agreed with their supervisors. International and UK-headquartered banks should also ensure that their new euro area hubs become fully operational. The focus of their efforts should now be on finalising the build-up of local capabilities and infrastructure, and on transferring remaining contracts and clients to the euro area.
Banks headquartered in the euro area have also committed to implementing target operating models for their UK branches, in line with supervisory expectations for branches in third countries.
Supervision Newsletter February 2019: Brexit - meeting supervisory expectations
These expectations are not affected by the way in which the United Kingdom leaves the EU: ratification of the withdrawal agreement or hard Brexit.
Brexit is only one of many challenges that banks face in the current economic, regulatory and supervisory environment. So it is all the more important to adapt quickly to the post-Brexit environment and avoid lengthy implementation periods.Supervisory priorities 2019
On the supervisory side, the ECB and national competent authorities in euro area countries will continue to closely monitor that banks implement their Brexit plans in a timely manner and comply with agreed commitments. This may be included in key supervisory processes such as the Supervisory Review and Evaluation Process.
The ECB has already taken steps to ensure that there will be continued supervisory cooperation with the UK authorities. In early April 2019 the ECB, the UK Prudential Regulatory Authority and the UK Financial Conduct Authority agreed on a framework, in the form of a Memorandum of Understanding (MoU), that will enable their current cooperation and exchanges of information to continue after Brexit. A wide range of areas are covered in the MoU, including ongoing supervision, authorisation procedures, on-site inspections, the application of supervisory measures, cooperation in emergency situations, and enforcement. The MoU will take effect when the United Kingdom withdraws from the EU.
The months ahead will continue to require active preparation by banks, as Brexit is still within sight. Euro area supervisors have prepared by setting up additional joint supervisory teams and making arrangements for continued cooperation with the UK authorities after Brexit. Supervisors will continue to closely follow banks’ implementation of their Brexit plans and monitor their adherence to supervisory expectations with a view to avoiding any delays.