The European Banking Authority (EBA) is calling on financial services firms to make preparations for the possibility that the U.K. may exit the European Union (EU) without a formal agreement in place dictating that country’s future relationship with the rest of Europe.
The EBA issued a warning on Monday about the risks posed by lack of preparation among financial services institutions for the possible departure of the U.K. without a formal withdrawal agreement. The EBA also called on local regulators to ensure that financial services firms are taking practical steps to prepare for the possibility of the U.K.’s withdrawal next year.
The EBA noted that regulators’ monitoring of firms’ contingency planning to date shows that “financial institutions need to speed up their preparations for the potential departure of the U.K. from the EU in March 2019 without a ratified withdrawal agreement in place.”
The report warns that financial services institutions in both the EU and the U.K. must identify potential risks and exposures stemming from the departure of the U.K. without an agreement setting out the terms of the withdrawal.
“In particular, financial institutions should ensure they have the correct regulatory permissions, and associated management capacity in place ahead of time. They should identify risks around access to financial market infrastructures and funding markets and mitigate those,” the EBA’s warning states. “Financial institutions should also assess and take necessary actions to address any impacts on rights and obligations of their existing contracts, in particular derivative contracts.”
In addition, the EBA said that firms have a duty to communicate the possible impact to their clients.
“Firms cannot take for granted that they continue to operate as at present nor can they rely on as yet unrealized political agreements or public policy interventions,” said Andrea Enria, chairwoman of the EBA, in a statement. “Risks, capacity and legal implications must be examined and addressed.”