ECB makes statement on standards for Eurozone bank licences after a ‘hard Brexit’

In a statement by Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, Lautenschläger considered that any bank that moves to the euro area will have to meet the ECB’s standards – regardless of whether it comes from the UK or any other place.

Most importantly, the ECB will not accept empty shell companies. All entities in the euro area must have adequate local risk management, sufficient local staff and operational independence. All that should be self-evident.

Banks which seek to permanently book all exposures back-to-back with another entity in London should change their plans. And so should banks that plan to book all exposures with a euro area entity while having their risk management somewhere else.

The ECB is aware that it is a burden for UK banks to apply for a new licence in the EU. With a view to internal models, the ECB would aim to be accommodating regarding the timing. There will be a transitional period in which new euro area entities might use internal models that have not yet been approved by the ECB.

But of course, there are conditions attached. First, the relevant models must have been approved by the UK’s Prudential Regulation Authority. The ECB would also reflect on any comments on the quality of the models from its UK colleagues. Second, the banks must have applied for internal model approval in the euro area. The transitional period will cease as soon as we have approved or rejected the bank’s model application.