One is that this is a straightforward, common-sense piece of advice.
The possibility of a hard Brexit is certainly increasing as the Irish border issue, in particular, looms ever larger as a stumbling block. Supporters will argue that the EBA, which seeks to promote financial stability across the EU, is merely pointing that out and reminding the sector that even a transition deal is by no means guaranteed.
The other is that this is a cynical intervention calculated at undermining the City and Canary Wharf and at persuading banks and other financial services institutions to move more of their staff away from the UK to Paris, Frankfurt, Dublin and other locations.
The EBA will say that, in reminding banks that they must have sufficient numbers of staff at their new operations to ensure continuity of operations after Britain leaves the EU in March next year, it is merely repeating the warnings of others.
For instance, this warning comes just days after Joachim Wuermeling, a member of the board of the Bundesbank, Germany’s influential central bank, urged German banks to better prepare for a hard Brexit.
Yet the EBA’s advice does rather read and feel like an effort to chivvy banks into moving more staff out of Britain and particularly because it contradicts what the Bank of England has been saying recently.
The Bank, which was not commenting on the EBA statement today, made clear at the end of March that “it would be difficult”, ahead of Brexit, “for all financial institutions to have completed all of the necessary steps required to mitigate the risks to the provision of financial services in the EU and the UK”.
To that end Sam Woods, the Bank’s deputy governor for prudential regulation and chief executive of the Bank’s Prudential Regulation Authority, wrote to banks and other financial institutions, making this observation: “The Government has committed to bring forward legislation, if necessary, to create a temporary permissions regime to allow relevant firms to continue their activities in the UK for a limited period after withdrawal. In the unlikely event that the Withdrawal Agreement is not ratified, this provides confidence that a back-stop will be available.”
That was a pretty clear signal to the financial services sector that, while it was important for them to prepare for Brexit, they need not panic about the prospect of Britain leaving the EU without a transition deal.
The EBA’s statement today looks like an attempt to undermine the Bank’s previous advice and one has to wonder why.
Perhaps it is because it is some City institutions increasingly suspect the EU’s own financial regulators are stalling on negotiations.
As Miles Celic, chief executive of The CityUK, the main industry body, said today: “Financial services firms in the UK have had contingency plans in place for months.
“Our industry has had a constructive, ongoing dialogue with regulators and government. We have worked together to minimise the risk of disruption to clients and the wider economy.
“The single most helpful thing European authorities can now do right now is to engage urgently and seriously with the issue of contract continuity. The lack of progress by EU regulators on this vital issue is the most pressing item on the agenda.”
If this has not been a deliberate attempt by the EBA to undermine the City, it is perhaps just a remarkable coincidence that today also saw a separate warning from the European Central Bank to banks looking to set up hubs in the eurozone that, if they did not have their licence applications in by the end of the month, it could not guarantee they would have their authorisations in place by the time of Brexit.
The other clue suggesting this to be an attempt by the EBA to weaken the UK’s financial services sector is in this line on page 7: “Financial institutions… should assess the extent to which their MREL-eligible liabilities are issued under UK law (for EU27 institutions) or under EU27 law (for UK institutions), having regard to the fact that such issuances may cease to be eligible for MREL following the UK’s departure.”
Strip away the acronyms and this is essentially a warning from the EBA that banks may need to set aside more capital to cover lending in the UK.
The only way in which the EBA could have been less subtle would have been for its chairperson, Andrea Enria, to have marched through the City with one of those old placards that advertised ‘Giant golf sale, 250 yards next right’ but instead reading ‘Move to Paris/Frankfurt – ask me how’.