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With no plans emerging from talks, banks are preparing for "cliff-hanger" Brexit

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With no plans emerging from talks, banks are preparing for "cliff-hanger" Brexit

Banks are demanding clarity about exactly how the U.K. will exit the EU so they know what regulatory framework they will work under post-Brexit, members of the financial community said Oct. 17.

Market participants, on a panel at a conference in Paris, said uncertainty around the outcome of Brexit talks between the 27-member EU bloc and the U.K. meant that banks and financial services companies did not yet have a clear indication of what kind of market they will be operating in after the U.K. leaves the EU.

"It is very important for us to understand what we need to be prepared for," Sylvie Matherat, chief regulatory officer at Deutsche Bank AG, said.

Regulators want banks to provide them with post-Brexit plans, but if there is no idea of what Brexit will look like, then it is difficult to provide a plan, Matherat said, adding that the uncertain political environment was also weighing on banks' plans.

The U.K. voted to leave the EU in a referendum in June 2016, and negotiations with the bloc about the terms of its departure have been fraught with difficulties, raising concerns that the U.K. will leave without any kind of deal.

Financial firms based in the City of London are relocating part of their operations to other capitals within the EU so they can be sure of retaining passporting rights, allowing them to operate throughout the EU.

Hans-Ole Jochumsen, vice-chair of Nasdaq Inc., said financial services firms would be seeking certainty in the coming months and would be ready to implement their "plan B."

"If you fear a cliff-hanger you need to prepare for that," he said.

Elizabeth Corley, vice chair at Allianz Global Investors, part of Allianz Group, said smaller organizations were more likely to delay their Brexit plans due to the high costs involved.

"There are mid-tier organizations for whom this will be a very significant investment with no payback so they will naturally delay to the point at which they have to do that, and for mid- and small-tier organizations, this is not a risk-free delay," she told the conference.

If the U.K. ends up losing its passporting rights to operate within the EU, it will have significant "negative effects" on the financial sector and would result in the need to renegotiate contracts, said Pierre-Henri Conac, professor of commercial law at the University of Luxembourg.

"Access to this center is going to be lost so it means less products, less cross-border trade," he told the panel.

Some firms also may be forced to move their clearing operations out of London as regulators want to ensure that clearing is regulated within the EU. Matherat said discussions on that topic would involve all industry participants, but a decision would need to be taken in 2018.

"Sometime in the next year we will need to make a decision, and the earlier the better," she told the conference.