Banks in UK have not been able to ready themselves yet for a “no deal” Brexit and hence they should act now so that they would be able to avoid risking the stability of the financial system, says the European Union’s top regulator.
The preparation of the banks for an eventuality where the UK does leave the European Union without a deal about the way of managing future ties has been “inadequate”, said the European Banking Authority in an opinion published on Monday.
“The necessary mitigating actions take time, and should be pursued without further delay,” the regulator said. “Financial stability should not be put at risk because financial institutions are trying to avoid costs.”
The UK government and the banks just has nine months at hand before Brexit and UK has not yet been able to strike an agreement that can nullify the risk of a sudden exit of the country from EU arrangements which gives the banks as well as other businesses to do business freely throughout the block.
Bank should not assume the materialization of such an agreement, the regulator warned.
According to bankers, a Brexit without an adequate deal would cast a doubt about the legal status of the financial products that are priced in euros and bring down the stature of London as the top financial center of the world as well as potentially result in loss of jobs to the tune of tens of thousands in the UK.
Some steps for preparation for the legal and regulatory consequences of Brexit have been taken by some big banks, investment firms and insurers that are based in London.
Licenses that would give them the scope of continue to do business within the European Union freely have bene applied for by some UK financial services companies. Yet other companies have set up offices in cities such as Frankfurt, Paris or Dublin, and have started the processes of relocating staff.
While noting these progresses, the European Banking Authority has said that banks need to take up more measures to learn about the impact on their capital levels and their capacity to offer complex financial products including derivatives a “no deal” scenario would have.
“Where planning is taking place, some financial institutions appear to be delaying triggering the necessary actions,” it warned. “The time for the required actions to be taken is reducing.”
The Bank of England had earlier said that capital adequacy of lenders in the United Kingdom is quite good and there is currently no need for banks to rush to garner more funds for in preperation for a rough Brexit deal. Still it has called on the UK and EU negotiators to make progress in the negotiations.
“Progress has been made towards mitigating risks of disruption to the availability of financial services,” the Bank of England’s Financial Policy Committee said in March. “Nonetheless, material risks remain, particularly in areas where actions would be needed by both the UK and EU authorities.”
(Adapted from Money.CNN.com)