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The European Central Bank (ECB) criticized banks for not preparing for Brexit quickly enough, saying that financial institutions (FIs) have transferred "significantly fewer activities, critical functions, and staff to euro area entities than originally foreseen."
The ECB added that while it believes the risks posed by a no-deal Brexit to Euro area financial stability on the whole would be manageable, it still expects banks to prepare for all possible contingencies — stating that they should speed up the implementation of any contingency plans.
Brexit poses a couple of potentially serious headaches for FIs in the UK:
- A shrinking pool of tech talent. If a no-deal Brexit occurs, financial services organizations could face issues drawing tech talent from the EU, per a report from TheCityUK, which went on to cite a LinkedIn Workforce report that found that in the years since the Brexit vote, there’s been a considerable decrease in graduates with the required tech skills in the sector moving to the UK. A paucity of tech talent could hamper UK FIs’ ability to keep up on digital offerings in the long term.
- Loss of passporting rights. Passporting rights allow any firm authorized in a European Economic Area to carry on activities it’s permitted to in its home state and any other EEA state by either establishing a branch or agents in an EEA country or providing cross-border services, according to Bank of England. But these rights may be on the chopping block if the UK can’t seal a more favorable deal, and that could slow down how quickly UK-based banks can innovate.
The ECB’s concerns are even more foreboding given that many FIs have been taking steps to prepare for Brexit. HSBC, for example, announced plans to move as many as 1,000 jobs from London to Paris, citing Brexit concerns. And on a larger scale, FIs have disclosed as much as $5.2 billion in relocation costs, legal advice, and contingency provisions related to Brexit.
That the ECB is warning financial firms to step it up notwithstanding these preparations illustrates the severity of the issue and suggests that banks that are ready for Brexit day one could stand to gain in the Euro area in the short term.
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