Six steps to Brexit-proof your banking licence

Six steps to Brexit-proof your banking licence

This articles tackles one of the biggest dilemmas in financial services - how do EU and UK banks continue to do business as usual after Brexit?

Giles Adams - Partner, Regulatory Risk Compliance Practice, KPMG UK

Partner, Regulatory Risk Compliance Practice

KPMG in the UK


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‘Passporting’ has been the hottest topic in financial services since the referendum. It sums up the dilemma on either side of the Channel: how do EU, UK and third country banks continue to do business as usual in the UK and across Europe once the UK has left the EU?

Right now, around 8,000 organisations passport into the UK to secure their presence here. Another 5,500 City firms do the same into the EU itself. Come March 2019 all that will change. All banks - many with little experience of the UK regulator - will need a licenced branch or subsidiary to operate in the UK, while the UK itself will have third country status.

As uncertainty continues to swirl around the Brexit negotiations, many banks still have countless unanswered questions. And yet the clock is ticking fast: it usually takes 18 months to gain a licence and more than two years to set up a subsidiary.

With just 130 European banks so far applying for a full licence to do business here after Brexit, firms clearly want some direction before making vital decisions for their future. Encouragingly, the regulators have been calling for a transition period to ease the City’s passage to Brexit, as was also outlined in Prime Minister Theresa May’s Florence speech. The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) are also considering various solutions for the wave of firms seeking authorisation, with temporary licences suggested as a potential solution.

While the authorities and the Government decide on the best way forward, there’s plenty banks themselves can already be doing now. That includes vital no regrets decisions to ensure your business is not just Brexit-ready, but match-fit for the opportunities ahead.

The six steps to no regrets readiness:

  1. Don’t make decisions in isolation – consider the likely commercial impact of either branch and subsidiary status on your business. Weigh up everything from cost, compliance and tax, to global mobility, resourcing and workforce
  2. If your business currently has branch status through passporting, think about the impact of the anticipated Prudential Regulation Authority (PRA) and FCA governance, if you should apply for third country branch status
  3. Ensure that your existing business meets the requirements of the PRA’s Supervisory Statement, SS12/14 – and pay close attention to any retail deposit taking that you offer your clients and customers
  4. Assess your risk framework. If you plan to become a third country branch, consider how you would meet the PRA and FCA requirements for UK risk management activities
  5. Review your firm’s existing outsourcing activities, from third parties to other legal entities within your branch’s group or with head office. Would they comply with the FCA and the PRA’s SYSC requirements?
  6. Look at the documentation linked to your branch’s IT infrastructure. Could you use this insight to meet your branch application?

These steps will not only help safeguard your business, they will provide key insight to aid the licence application process, for which you will also need to set out the UK branch specific governance framework and the KPIs driving your business after Brexit.

And remember while the regulators’ hands may be tied until they themselves have more direction, they may be able to help you understand your options and are already starting to reach out to branches to discuss next steps. 

With the UK’s largest bank authorisations and licencing practice and an extensive network of specialists across Europe, KPMG has direct access to the policy and decision makers that are reshaping Britain. To see how we can help your organisation transform for the future, please get in touch. 

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