On 12 October 2017, the European Banking Authority (EBA) published an Opinion on issues relating to the UK’s departure from the European Union (EU).
The Opinion is focused on the period prior to the departure of the UK.
The purpose of the Opinion is to provide guidance on supervisory expectations and to address regulatory and supervisory arbitrage risks that arise as a result from increased requests from entities seeking to relocate to the EU within a relatively short period of time. It also aims to provide practical recommendations to financial services firms and competent authorities, and to highlight to the European Commission areas of the legislative framework which could be updated to respond to challenges posed by the UK’s departure.
Key areas and principles discussed include:
- Authorisation: existing authorisation should not be lowered and competent authorities should ensure that applications relating to authorisation and registration are subject to existing procedures and standards.
- Internal models: the existing EU legal framework for model approvals should be applied in full, and, where model approvals or changes are sought, the CRR assessment process should be applied.
- Internal governance, outsourcing, risk transfers and “empty shell” companies: competent authorities should assess whether or not institutions have sound and effective governance in place and that the members of the management body are suitable. In addition, it should not allow institutions to outsource activities to such an extent that they operate as “empty shell” companies. All institutions should have the substance to identify and manage the risks they generate.
- Resolution and deposit guarantee schemes: changes arising from the UK’s departure should be factored into resolution authorities’ resolution planning. Institutions and authorities should assess their stock and issuance plans for instruments used to meet the minimum requirement for own funds and eligible in the light of the UK’s departure, and in particular their reliance on instruments issued under English law.
The EBA will assess the extent to which the recommendations in its Opinion have been adhered to, and will aim to complete a progress report before the end of 2018.