Regulators are continuing to focus their attention on the operations of international banks in Europe. Our Corporate and Financial Regulation teams look at developments for this sector in the aftermath of Brexit and why international banks may need to refresh their Brexit exit-plans. They also explore why Ireland continues to be an attractive location to carry out banking business in Europe.
We expect international banks to refresh their Brexit plans and reconsider Ireland as an option for establishing or expanding their operations in the EU due to an increased regulatory focus on this sector.
We consider:
- The regulatory focus on international banks in the aftermath of Brexit
- Why those banks may now need to refresh their Brexit plans, and
- Why Ireland continues to be an attractive option for banks wishing to establish or expand their base in the EU
Background
The immediate aftermath of Brexit saw a concerted effort by banks to bolster their presence in Europe. Bank of America, Citi and Barclays, amongst others, chose Dublin as their European headquarters.
From a supervisory perspective, the ECB tackled Brexit head-on operating a “no empty shell” policy. This resulted in banks being required to locate strategic and risk management capabilities within the EU. In addition, the ECB emphasised that “dual-hatting”, the practice of senior managers carrying out the same or similar functions at both the non-EU parent company and the EU subsidiary, should be avoided.
Transition issues
Addressing the transition has not been straightforward for international banks. While, at the initial stages, banks tried to minimise the impact of relocation, it soon became clear that “coping with the reality of Brexit would require more significant effort”.
Media reports have highlighted the continuing efforts by banks to move senior staff from London to the EU to ensure a presence in the EU. In addition, there have been reports of more dubious practices, with a senior banker claiming he was allocated a “fake” job title to satisfy regulatory expectations.
Banks were granted some leeway to postpone relocation plans during COVID-19, however it is now clear that supervisory authorities have refocused their attention on international banks and their presence in the EU.
Complying with new rules
The most significant development on the horizon is the introduction of a new requirement for non-EU banks carrying out “banking” business in the EU to establish an EU branch and apply for authorisation, subject to certain exceptions. A new article of the Capital Requirements Directive will provide that “banking” business, for the purposes of this requirement, includes lending, deposit-taking and providing guarantees and commitments,
In scope international banks should now consider if their operations and business need to be restructured to comply with the new rules. This restructuring may involve establishing a branch in the EU or moving its “banking” business to an EU group entity.
Ireland as an ideal location
In scope banks now need to actively consider Ireland as an option for relocation or expansion of existing operations. Ireland has proven to be an attractive gateway to Europe for financial services firms post-Brexit. The financial services sector in Ireland now directly employs an estimated 57,600 people and more than 430 financial services companies operate in Ireland. These include global financial institutions from international banks, investment managers and insurers to aircraft leasing operators and administrators.
Comment
We expect to see a second wave of international bank relocations and restructurings as a result of the increased regulatory focus on this sector. Ireland is ideally placed to adequately resource international banks given its agile, diverse and English-speaking workforce and its highly regarded financial services sector.
We are currently assisting international bank clients who are actively reconsidering their Brexit plans. Our advice for clients is to start this process now! The complexities of restructuring operations should not be underestimated.
Our Corporate and Financial Regulation teams have extensive experience advising international banks on restructuring options and on how to effectively and efficiently achieve compliance with regulatory requirements. Please reach out to a member of our dedicated teams to discuss any queries you may have.
The content of this article is provided for information purposes only and does not constitute legal or other advice.
