Barclays Brexit preparation sets bar for top banks

FRANKFURT: Barclays plc’s plan to quickly move European business to Dublin in preparation for Brexit is one of the most ambitious yet and gaining plaudits from regulators, according to people familiar with the talks.

The UK lender plans to book almost half its European Union-related (EU) trading risk within the bloc by the time the UK leaves, according to people familiar with the matter. That’s a level EU regulators consider other global banks should aspire to, even if they haven’t set specific goals, two of the people said, asking not to be identified because the plan is private.

With just four months before Brexit, global banks that conduct much of their European business from London are bracing for the possibility there’ll be no transition phase or other conditions to soften the blow to financial services. While many lenders have asked the European Central Bank (ECB) for new or expanded licences to maintain access to EU clients, the supervisor hasn’t reacted as quickly as hoped, people familiar with the matter said.

The ECB’s expectations for the transfer of risk follow EU regulatory principles and will take account of the “materiality and complexity” of individual banks’ capital markets businesses, according to a spokesman for the supervisor, who declined to comment on specific banks. Barclays declined to comment.

Banks including Goldman Sachs Group Inc and JPMorgan Chase & Co are still in talks with the ECB over the exact conditions they need to meet to increase EU operations. The key sticking point is the volume and speed at which banks need to move EU-related assets and staff to the bloc. Several firms had hoped to obtain the necessary authorisations by the middle of 2018 and are now increasingly frustrated, the people familiar said.

Barclays isn’t in that position. The bank picked Dublin as the location for its EU unit and chief executive officer Jes Staley said in October that the Central Bank of Ireland had approved his firm’s expansion there. That includes a plan to book 45 percent of its assets, weighted for EU-related market risk, in the country by Brexit, the people familiar said.

UK banks including Barclays have perhaps the most to lose as Brexit negotiations drag on. The London-based firm’s shares have fallen about 20 per cent this year and hit the lowest since September 2016 last month on the emergence of a potential nightmare scenario. Barclays also had the worst showing of 48 banks in Europe’s toughest stress test yet, underscoring the vulnerability of UK lenders to weak growth, credit losses and Brexit.

Daniele Nouy, who heads the ECB’s banking supervision arm, has said that banks’ trading and risk management capabilities must be “commensurate” with the size and risk of the operations they want to relocate. “They should move within two or three years at the most, and they will have to start with resources that are proportionate to the risk they are moving over,” she said in September. Still, most big banks plan to finish the move in as little as 12 months to win ECB approval, even if that timeline came as a surprise for many of the lenders and even some national regulators, said two of the people familiar.