The European Central Bank (ECB) wants to force international investment banks serving European customers from London to move more staff to EU member states.
According to the head of banking supervision Andrea Enria, after Brexit, too many large financial groups still work mainly from the British capital for customers in the eurozone. This is a problem because after the United Kingdom’s departure from the European Union, the same rules no longer automatically apply to banks.
After Brexit, many banks with offices in London, a major financial centre worldwide, relocated staff to cities in the EU so that they can continue to serve customers in the country bloc. But according to Enria, that is not enough. He announced in a blog that the ECB wants to issue “binding decisions” on key investment firms that are understaffed in the countries overseen by the central bank. This mainly involves appointing enough experienced staff to manage the risks in individual departments of the bank. The ECB could require banks to appoint a department head in the eurozone with clear rules on how he or she reports.
According to Enria, the measures to be taken by the ECB are completely new, because never before in such a short period of time so many financial institutions headquartered in a country outside the eurozone have been placed under the supervision of the central bank. He, therefore, argues in favour of looking at which steps are necessary for each bank with a large London branch.
According to Enria, an inventory of 264 departments of seven investment banks that trade on the financial markets shows that much of the risk management still takes place outside the eurozone. One in five so-called trading desks in the eurozone works with an identical department outside the currency union that covers part or all of the risks of the trading activities. That is a problem because then there is no ECB supervision.
In addition, 70 percent of the investigated departments use a method in which they do not cover the risks themselves but transfer them to another department or external party. That approach is controversial.