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ECB calls on banks to accelerate Brexit contingency plans

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ECB calls on banks to accelerate Brexit contingency plans

The ECB called on banks to step up their contingency plans for the U.K.'s departure from the EU, noting that lenders have so far transferred significantly fewer activities, critical functions and staff to euro area entities than originally expected as part of their Brexit preparations.

U.K. Prime Minister Boris Johnson has said the U.K. must leave the EU by the Oct. 31 deadline "come what may," and the ECB said a no-deal Brexit is "a very real possibility and could materialize Nov. 1."

The regulator warned that banks may not be able to fully execute their target operating models within the timelines agreed with their supervisors, potentially impacting their profitability. It also identified that some eurozone banks still need to continue to adjust their business and booking models, including servicing EU clients from branches in the U.K. post-Brexit, and align their remote booking practices and back-to-back hedging strategies with supervisory expectations.

Banks should address operational challenges linked with shifting employees to their new EU bases and setting up internal processes and systems, and follow up on agreed commitments, especially related to the buildup of local risk management capabilities and governance structures, the ECB said.

In terms of the continuity of uncleared cross-border derivatives contracts, the ECB has encouraged market participants to implement effective mitigating actions, where necessary, as soon as possible to avoid further delays. Banks are also expected to have sufficient onshore capacity to originate business and continuously access important financial market infrastructures, the regulator noted.

The ECB added that it now expects lenders to step up the implementation of their respective plans for all possible scenarios, while also being prepared for differences in the application of prudential provisions after October-end.