Joachim Wuermeling, a member of the Executive Board of Deutsche Bundesbank, spoke at the Embassy of the Federal Republic of Germany in London. He discussed the implications of Brexit for UK branches of German banks. From the perspective of a bank and from the perspective of a banking supervisor, he mentioned that the future regime under which banks and companies, in general, will operate after March 29, 2019 remains unclear.
Prof. Joachim Wuermeling stated that UK branches of German banks (and Single Supervisory Mechanism, or SSM, banks in general) will need to become third-country branches, as per what is known at the moment. The temporary permissions regime of PRA certainly buys time. However, there is no alternative to conversion into third-country branches. So far, PRA has received some applications for third-country branch authorization in UK. For German banks, unlike other SSM banks, there is no formal requirement for the home supervisor to approve a third-country branch. However, given the aim of establishing a level playing field among all current and future SSM banks, it should be expected that the SSM addresses certain requirements via other supervisory measures, where necessary, to ensure that the future set-up of the new third-country branches is in line with the expectations of SSM. A third-country branch will not be allowed to perform central functions for its SSM domiciled group. Moreover, any outsourcing must not hamper the efficient and effective supervision of SSM entities. Not all SSM banks are currently fully compliant with the respective supervisory expectations of SSM.
Making the transition from the EU28 to the EU27 as smooth as possible for the financial sector will require close cooperation between SSM and PRA. The details of such a split of responsibilities are being negotiated. He discussed "....what a split of responsibilities would mean for UK branches of German (and other SSM) banks. The truth is: we can’t really tell just yet. We’ll have to wait for the final outcome of the negotiations between supervisory authorities. As I have said, these negotiations are already under way and I am optimistic that they will be concluded soon." Overall, the goal must be to achieve an adequate level of information-sharing and joint supervisory work that does not lead to an increased workload for all parties involved. The agreement on a split of responsibilities will need to leave room for accommodating specific cases. On the basis of the agreement, PRA plans to process applications for third-country branches. In the short run, the temporary permissions regime will mitigate the outcome of a possible hard Brexit.
Nevertheless, financial institutions must prepare thoroughly, although the outcome in the long run depends on the way Brexit re-shapes the European financial system. However, the uncertainty continues. Since the referendum in June 2016, both financial institutions and supervisors have put tremendous effort into better understanding and preparing for every possible outcome. Although some tasks are yet to be completed, most banks are well advanced in their preparations, said Prof. Wuermeling.
Related Link: Speech
Keywords: Europe, EU, UK, Germany, Banking, Brexit, SSM, Third Country Branches, Bundesbank, PRA, BIS
Previous ArticleECB Paper Examines the Interest Rate Swap Market in Euro Area
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.
The SRB Chair Elke König published an article setting out work priorities for 2021.
FDIC has selected 11 technology companies—including BearingPoint, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the third and final phase of the rapid prototyping competition.