March 2017. Over the past quarter, a “hard Brexit” is being seen to be increasingly likely – banks are now planning for what they see as the worst scenario, defined as no passporting, limited or no equivalence judgements and no transition period. They also have started to work through the costly implications of amendments to the Capital Requirements Directive published last quarter that require banks to establish a single EU intermediate parent company if they have multiple EU entities.
We expect both EU27 and UK based banks to take decisions on legal entity strategy and operational locations, managing the dual uncertainties around Brexit models and medium term regulatory changes during the next quarter, noting some have done so already. This will require:
- Definition of a plausible set of outcome scenarios (looking beyond Brexit to broader regulatory outcomes)
- Designing legal entity setups and quantifying economics for each scenario
- Deploying a coherent advocacy approach aligned to the scenario economics
- Developing and implementing a detailed action plan