Banks told to pull staff out of the City in EU power grab
European Central Bank demands jobs be moved to the Continent after ‘desk mapping’ study
EIGHT banks have been ordered to shift staff out of London by European regulators as part of a Brussels power grab.
The European Central Bank (ECB) said it had identified 56 groups of traders who should be doing their jobs from within the European Union following a lengthy investigation into whether the institutions are seeking to dodge postbrexit rules.
In its “desk mapping” study, the ECB reviewed 264 British-based trading desks and found about a fifth of them should not be located in the UK.
It is now warning of “targeted supervisory action” against the banks, which it did not name, to order them to move jobs to the likes of Paris, Frankfurt and Dublin.
European rivals have repeatedly sought to lure workers out of London in the wake of the Brexit referendum, but the number of professionals leaving the City has been much smaller than initially predicted.
Consultants at EY estimate that around 7,000 roles have moved abroad since 2016, compared to forecasts of as many as 200,000 job losses before the vote. About 1.1m people work in financial services in the UK.
The ECB has already told banks that they must base staff in the EU if they are responsible for significant trading activity on the Continent. However, it fears many firms are using “brass plaque” European offices with few or no employees to get around its requirements.
Andrea Enria, the chairman of the supervisory board of the Frankfurtbased ECB, said: “The ECB is navigating uncharted waters.
“No major supervisor has ever had to assume, over a short period of time, the integration of a significant number of incoming institutions with global market activities belonging to groups headquartered in third countries in its supervisory remit.”
Industry insiders have said that the Covid pandemic and subsequent lockdowns postponed demands for senior staff to move overseas, though it remains to be seen whether that could change in the future as public health concerns abate.
Launched in 2020, the “deskmapping” review was a direct response to Brexit. Under the terms of the UK’S withdrawal from the EU, British-based banks lost access to “passporting” – the right for firms based in the bloc to trade freely within the European single market.
As a result, the ECB carried out a review of primarily London-based banks, which had subsidiaries within the European market, to ensure that those businesses had “adequate governance and risk management capabilities”, said Mr Enria.
The review found that 70pc of the desks surveyed used “back-to-back” booking models, where banks shift risk back to the UK by carrying out a deal in one jurisdiction, but then book a parallel transaction in London – a move that has been criticised for essentially shifting responsibility for the trades into the City.
Meanwhile, around 20pc of desks were organised as split desks, which simply meant that EU clients or assets were handled jointly across offices in the UK and on the Continent.
In light of these arrangements, Mr Enria said that “banks do not yet retain full control of their balance sheets”, and therefore do not yet meet the ECB’S expectations.
Mr Enria said: “the review of trading desks and their associated risks does not mark the end of the ECB’S supervisory scrutiny of incoming banks’ postbrexit operating models.
“Investigations into credit riskshifting techniques, the reliance on parent entities for liquidity and funding, and internal model approvals are still ongoing”.