30 May 2017

Brexit contingency planning alert for financial services firms

Financial services firms to provide the Prudential Regulation Authority with information on their Brexit contingency plans by 14 July 2017.

Banks, insurers and designated investment firms undertaking cross-border activities between the UK and the rest of the EU need to provide the Prudential Regulation Authority (PRA) with information on their Brexit contingency plans by 14 July.

In a letter to CEOs and branch managers, the PRA says it wants to make sure all firms are making, and will be ready to execute, contingency plans for all possible scenarios so that ‘the safety and soundness of their UK operation is assured and the risk of any adverse financial stability impacts on the UK economy is mitigated’.  

The PRA notes that many firms are well-advanced in their planning, but says that ‘the level of planning is uneven across firms and plans may not be being sufficiency tested against the most adverse potential outcomes’. As an example, it gives the possible situation of there being no withdrawal or trade agreement in place when the UK exits from the EU, and the UK and EU having failed to reach agreement on issues such as implementation periods, mutual recognition of standards, and cooperation in financial regulation or supervision.

Where firms currently rely on passporting arrangements to undertake business in the UK, or firms’ UK businesses include a material non-UK European element, the PRA expects them to have full contingency plans covering a range of scenarios, including the most adverse potential outcomes. For example, such firms should consider the need to apply for authorisation from the PRA, which may be needed to continue operating as an incoming branch or a subsidiary after the UK leaves the EU. They should also plan for the potential need for structural changes, such as setting up a subsidiary.

Firms are asked to respond to the PRA by 14 July, providing:

  • written confirmation that their board or local branch senior management has considered its contingency plans around UK withdrawal;
  • a short summary of those plans;
  • assurance that those plans appropriately address a wide range of scenarios, including those highlighted by the PRA.

Firms should also inform the PRA where authorisation or other regulatory engagement is required.

The PRA recognises that firms’ business models and legal structures vary widely and that many firms operating in the UK may have only a small European element to their business. For such firms, the PRA says that ‘a de minimis response will likely suffice’.   

The PRA will feed firms’ responses into the Bank of England’s own contingency planning, and will share relevant information with the Financial Conduct Authority.

Please get in touch for further information or any contingency planning support.

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