EU watchdog tells UK banks to get ready for full Brexit

LONDON (Reuters) – Banks that use the UK as a gateway to the European Union must fully implement their plans to serve EU customers before a Brexit transition period ends in December, the EU bank guard announced on Wednesday.

FILE PHOTO: British Union Jack and EU flags are pictured on September 20, 2019 at the EU Commission headquarters in Brussels, Belgium. Kenzo Tribouillard / Pool via REUTERS

Britain left the EU in January, but financial companies have full access to the block under transitional arrangements that end on December 31. There is no mechanism for direct EU access to deposits or loans as of January.

Many large banks have already opened hubs in Frankfurt and elsewhere in the block to continue serving customers, while EU banks in London, such as ING, have started to move some employees home.

The European Banking Authority said that these banks must now complete the "full implementation" of their Brexit plans as agreed in their new licenses.

"In particular, financial institutions should ensure that the associated management capacity, including appropriate technical risk management skills, is effectively placed in advance," said the EBA.

This should be "appropriate to the scope, scope and complexity of their activities," it said.

The new EU hubs are expected to increase their block footprint in proportion to business volume.

"Despite significant measures by many financial institutions, there is no room for complacency even for those institutions that have already received all the necessary approvals and permits," said the EBA.

Much remains to be done to change and shift contracts from the UK to EU operations.

Action was also needed to deal with "systemic exposure" to UK financial market infrastructures, partly due to large euro derivatives positions in UK clearing houses.

There were also potential "capital effects," said the EBA. Britain has yet to say whether London banks will have to hold more capital against euro area debt after the transition ends.

"Institutions should also evaluate and take the necessary measures to take into account any implications for the rights and obligations of their existing contracts, particularly derivative contracts," said the EBA.

Reporting by Huw Jones; Edited by Peter Graff, Larry King

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