ECB warning for Banks planning post-Brexit relocation
The European Central Bank (ECB) has issued a statement on the Brexit relocation plans of banks. The ECB criticised some elements in a number of banks’ plans that do not fully meet the ECB’s expectations and requirements.
With regards to staffing, the ECB warned against “dual-hatting,” a process whereby employees hold roles across different locations. This situation may limit independence, create conflicts of interest and result in insufficient time being available for each function.
No Empty Shells:
Apart from being well-capitalised and having adequate liquidity and funding, banks also need to have substance locally. They must have legitimate business operations and a physical presence, and not merely be “empty shells.”
The ECB had even greater concerns about the possibility that euro bank employees would be spending the majority of their time in a third country, and not in the euro area. They want to see control functions and local governance to be sufficiently independent and banks to have staff in place locally. They added that banks needed to have permanent local trading capabilities and risk-management operations in place.
In a newsletter issued by the ECB they stated: “Banks must have full control of their balance sheets and be able to see the full risk picture; the management bodies of EU banks must be fully responsible for the activities carried out by the banks they manage.”
To reiterate the message from the ECB with regards to relocation; banks need to have substance locally. The same goes for businesses.
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