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- Bank of England’s Sam Woods says Britain and EU need to agree on transition deal before Christmas to avoid worst-case Brexit scenario of banks relocating. Banks need at least a year to set up new EU entities so could start executing Brexit contingencies at the start of 2018 if they do not receive clarity. Woods gave a speech in the City of London just as Goldman Sachs confirms it has leased a large new office space in German financial centre Frankfurt.
LONDON – One of the Bank of England’s most senior staff in charge of banking regulation has warned that Britain and the EU need to make progress on a Brexit transition deal by Christmas or risk seeing banks and financial firms leave.
“I struggle to see an outcome in which banks and insurers do not get harder to supervise and harder to resolve for all involved,” Sam Woods, the chief executive of the Prudential Regulation Authority (PRA), an arm of the BoE, said in a speech on Wednesday evening.
“If we get to Christmas and the negotiations have not reached any agreement on this topic, diminishing marginal returns will kick in. Firms would start discounting the likelihood of a transition in the central case of their planning,” Woods told the audience at the City Banquet at Mansion House.
“Some form of transition or implementation period” is the “most important” outcome of Brexit discussions for the PRA, he said.
Concern over securing a transition deal is driven by the fact that banks need to make final decisions about moving staff by the first quarter of next year at the latest. Banks need at least a year, if not longer, to set up fully functioning branches and subsidiaries in Europe to maintain uninterrupted EU activities.
Without some clarity over future arrangements, banks will look to their worst case contingency plans, which are generally believed to involve large scale staff moves.
Goldman’s Frankfurt ‘contingency plan’
- Thomson Reuters
Woods’ speech coincided with an announcement from Goldman Sachs late on Wednesday that it has taken new office space in the German financial centre of Frankfurt to prepare for Brexit.
“Goldman Sachs has signed a lease agreement for the upper floors of the Marienturm in Frankfurt, a new office tower currently under construction,” the bank said in a statement. “This expanded office space will allow us to grow our operations in Germany to continue serving our clients, as well as provide us with the space to execute on our Brexit contingency plan as needed.”
The added space means that Goldman will be able to increase the number of staff it has in the German capital from around 200 now to roughly 1,000. The bank currently employs around 6,500 people in the UK.
Goldman has been one of the most vocal banks lobbying British authorities for a long-term Brexit transitional deal that would allow financial firms time to adjust to the likely substantial changes in the regulatory framework.
Woods said the Bank of England is concerned about regulating two areas of the financial services sector – derivatives and information sharing. He told the audience of bankers and politicians:
“We are also engaging with financial institutions, trade bodies, the FCA and the government to unpick cross-sectoral problems. The two uppermost in our mind are the need to ensure that existing insurance and derivatives contracts can continue post-Brexit, and that data can be shared within groups across the UK/EU27 border.”
Woods went on to say that it would be “messy and difficult for all firms to try to self-solve for these risks and I hope that we can find suitable fixes as the Brexit negotiations progress.”
Woods’ words came just a day after the Bank of England’s Financial Policy Committee – of which Woods is a member – warned of the “significant risks” posed if the EU mandates that the clearing of derivatives and other financial instruments is moved out of London after Brexit.