European Banking Authority warns preparations for a no-deal Brexit by financial institutions are inadequate

The opinion is directed at “competent authorities” (within the UK being the Financial Conduct Authority and the Prudential Regulation Authority) together with credit institutions, investment firms, payment service providers, electronic money institution and creditors and credit intermediaries (financial institutions).

Background

The context for the EBA’s concern is that, whilst the terms of a transitional period following the UK’s withdrawal from the EU in March 2019 have been agreed in principle, in the absence of a legally binding withdrawal agreement the transitional period will not come into effect. The EBA appears to be of the view that time is quickly running out for negotiation of a Brexit deal and that the chances of a no-deal Brexit are increasing. As Brexit negotiators on both sides have pointed out throughout the process, “nothing is agreed until everything is agreed”. The EBA believes that a no-deal Brexit is a material possibility.

Instructions for financial institutions

The EBA has concluded that “progress in the preparations of financial institutions for the potential departure of the UK from the EU without a ratified withdrawal agreement in March 2019 is inadequate”. The EBA instructs affected institutions to pursue mitigating actions without delay. The EBA cites a number of steps that institutions should be taking. These include:

• ensuring they have the necessary regulatory permissions in the UK and the EU
• identifying which existing and future contracts will be affected
• identifying where their data and their clients’ data is stored
• identifying the UK financial market infrastructures to which they need access and considering alternatives.

Customer communications

The EBA instructs relevant authorities to engage with financial institutions to ensure that they have considered their obligations to customers and taken necessary actions to ensure continuity of service of their existing contractual commitments. The EBA expects institutions to provide clear information to customers whose contracts or services may be affected as soon as that information becomes available to them and by the end of 2018 at the latest. The information should include details of the customers’ contractual and corporatestatutory rights, including any right to cancel the contract.

The EBA intends to continue to monitor developments and to engage with relevant authorities to assess the contingency planning being carried out. Affected institutions should heed the guidance provided and take proactive steps now. As time progresses, the regulators in the UK will be engaging with them to assess their preparedness.