BoE Asks Financial Firms To Develop Contingency Plans For Brexit

UK’s central bank has asked all regulated financial organizations operating in the country to submit their contingency plans for Brexit by July 14. The move comes in light of the UK government triggering the formal processfor withdrawing from the European Union (EU) late last month.

Sam Woods, the deputy governor for prudential regulation at the Prudential Regulation Authority (PRA) which comes under the Bank of England (BOE) has sent a letter to all banks, investment companies and insurance firms that handle cross-border transactions across UK and EU.

The letter has been sent to subsidiaries of US investment banks based in London, divisions of companies based in other EU countries and UK-based companies and all of them have been instructed to submit their contingency plans.

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In a statement, Sam Woods said

Many firms are well advanced in their planning and have engaged closely with the PRA as part of that process. However, our current assessment is that the level of planning is uneven across firms. Plans may not be sufficiently tested against the most adverse potential outcomes.

Deputy governor Sharon Donnery said that the BOE was closely working with the financial sector to assess the possible risks to the companies arising from Brexit. According to the BOE, the main aim of the letter was to ensure that all companies are in readiness to face the range of potential outcomes that were possible from the Brexit negotiations and be in position to continue with normal operations.

Woods pointed out that companies must have plans for situations like the UK not having any withdrawal agreement or failing to agree with EU on things like implementation periods or co-operation in financial regulation and supervision. He also clarified that the European firm operating in London would need to set up UK-registered subsidiaries in order to continue doing business.

Speaking at an event, BOE governor Mark Carney reiterated that financial firms must be ready for all eventualities. He however also used the occasion to call upon UK and EU leaders to agree on a deal to recognize each other’s banking rules, stating that without it financial trade across Europe might take a major hit.

Carney emphasized the key role of London in global trade and urged Britain and the EU to create an effective system featuring elements like mutual acceptance of other’s regulatory systems, open supervisory co-operation and an independent dispute resolution mechanism. Financial analysts however were not very optimistic towards the adoption of such a system.

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