With the Brexit deadline postponed till October, several financial services firms in London are refraining from building up further reserves in the euro area until the last minute.
Thursday 20, June 2019
(Bloomberg) --Goldman Sachs Group and Standard Chartered are among global firms postponing the transfer of several billion euros of capital outside the UK despite regulatory pressure to complete the move.
Other lenders including Citigroup have only shifted part of the assets they were planning to relocate due to the delays in Brexit. During meetings with the European Central Bank (ECB) and German regulators, executives at the firms said they cannot be forced to transfer the capital as the UK is still in the European Union and clients still prefer to do business in London.
The ECB requires banks to hold enough funds to ensure they can absorb potential losses at their European units. Banks in the region rushed to set up subsidiaries in the euro area and negotiated the capital levels required to do so with the ECB.
Joe Cassidy, a partner at KPMG in London, said, “Clients generally still prefer to do business with UK-domiciled entities from a capital market perspective, the UK is still where the liquidity is.”
European regulators are arguing that banking licences they granted were based on clear capitalisation plans for new entities.
Andrea Enria, the head of the ECB’s Supervisory Board, said, “The ECB has told banks that despite the political uncertainty surrounding Brexit, it expects banks to fulfil their commitments to implement the target operating models they agreed to as part of relocating some of their operations.”
Standard Chartered said the lender has set up and invested into its subsidiary in Frankfurt.
The UK is in Brexit deadlock over the terms of its departure. Boris Johnson, the leading candidate to replace Theresa May as Prime Minister, has promised to take the UK out of the bloc on 31 October even if no deal has been struck in time.
The major US investment banks have planned to transfer about EUR 250 billion ($280 billion) of balance-sheet assets to Germany’s financial centre.
Some London-based banks such as Standard Chartered are also counting on using the temporary permissions regime whose deadline for applications has recently been extended to October.