On 27 April 2018, it was announced that the European Central Bank (ECB) and the Bank of England (BoE) are to convene a joint technical working group (“Working Group”), commissioned by HM Treasury and the European Commission.
The Working Group will examine risk management specifically in the financial services sector in the period around Britain leaving the European Union (EU) on 29 March 2019. We understand that the first two main areas of focus will be contract certainty and data, but the issues and agenda will develop over time. The Working Group will, however, remain separate to the ongoing Brexit negotiations in Brussels.
The Working Group will be chaired by the President of the ECB, Mario Draghi, and Bank of England governor Mark Carney, and will report to HM Treasury and the European Commission. The European Commission and HM Treasury will attend as observers and other relevant authorities will be invited “on an issue specific basis”.
The ECB is the prudential supervisor for the most significant Eurozone banks under the Single Supervisory Mechanism (SSM), while the Bank of England is the lead prudential regulator and supervisor for UK banks and large investment firms.
DLA Piper comment:
The announcement of the Working Group signals a shift towards closer cooperation between EU and UK regulators to mitigate potential risks to the financial services sector following Brexit and is an approach that the PRA and FCA have been advocating for some time. Such a development is clearly a positive and sensible development in Brexit-planning, and is likely to be welcome news for UK firms passporting into the EU as an indication of closer coordination to prevent cliff-edge scenarios. That said, the Working Group terms of reference reaffirm that the primary responsibility to prepare for Brexit remains with market participants.
The Working Group announcement comes in the context of the UK having already indicated its willingness, if necessary, to legislate for a temporary permissions regime until December 2020 for EU firms passporting into the UK, although such a move has yet to be reciprocated by the EU for UK firms passporting out. For more information of the UK approach to the transitional arrangements, please see here.
While there is no indication that the Working Group is designed for anything other than the management of issues during the Brexit period, a working group of this sort, if continued in the longer term, could be a fruitful informal means for ongoing joint work and dialogue between the ECB and the Bank of England in relation to banking supervision and central banking issues in a post-Brexit world.