European banks must be prepared to face the consequences should the United Kingdom leave the European Union without a deal (hard Brexit) at the end of March 2019, the European Banking Authority (EBA) warned on Monday 25 June.
However, this is not currently the case, the authority considers, warning that although “welcome”, the recent political agreement on a post-Brexit transitional period “will not be given legal effect until there is a ratified Withdrawal Agreement in place”.
In particular, European banks located in the EU27 are invited to identify their financial exposures to counterparties located in the UK and vice versa. They should also know where their own data and those of their clients are stored.
Depending on their business models, European banks should ensure that after Brexit, they continue to hold the regulatory authorisations applicable in the UK and/or the EU27. This is particularly relevant for compliance with the European directive on the bank deposit guarantee regimes.
Additionally, banks covered by the 'BRRD' directive on bank resolution should ensure that their MREL assets, to be mobilised in the event of a bail-in, issued under UK, law will continue to be eligible in the EU, and vice versa.
In case of investments in derivative products, banks are urged to verify whether changes to their contracts will be needed, for instance by working with their clients to assess the benefits of securing an alternative counterparty. They should also analyse whether an alternative central counterparty (CCP) is available.
The wholesale market could also be affected by a no-deal Brexit. Whether they are based in the UK or the EU27, banks should examine the maturity profile of their financing.
Finally, the EBA stresses that European banks are obliged to notify their clients if their contractual relationships are affected by Brexit. (Original version in French by Mathieu Bion)