London bankers stuck in location limbo amid pressure by regulators

Young bankers waiting to learn when or whether they might be relocated to the EU can take some solace from the fact that their bosses often also don’t know their own fate.

A senior banker hired to work in London last year was asked just weeks later to pack his bags and move to Europe. Some trading managers at one US bank still don’t know whether they’ll be able to stay in the UK, while a young trader starting a new job at a European lender this month is waiting to learn just where that job will be.

Despite years of planning for Brexit, global banks and their employees face continuing uncertainty as a threadbare trade deal for financial services and a pandemic keep the world in flux. Meanwhile, regulators are cranking up pressure on banks to execute relocation plans that were set out before Britain left the bloc on December 31.

In the short term, European authorities are granting banks some flexibility as the continent’s latest Covid-19 outbreak slows attempts to move staff to the bloc as agreed, according to more than half a dozen executives and traders involved in the process who asked not to be named. But it is a temporary reprieve.

The European Central Bank is keen to reduce banks’ reliance on the back-to-back model that enables trades processed in Europe to be booked in London, where risk and liquidity — as well as traders — ultimately sit. The authority has often said that EU units should be managed locally.

ECB Supervisory Board chair Andrea Enria said last week banks are engaging but there are “still some sticking points” for a number of firms after Britain’s departure pushed business such as EU stock trading into the single market. “We have seen significant progress also in the final months of last year, so we’re encouraged that we will get to the target operating model pretty soon.”

Little clarity

Beyond the moves that were supposed to take place before January 1, banks including JPMorgan Chase & Co and Citigroup are preparing to shift more risk-takers out of Britain by year’s end to soothe the authorities’ longer-term concerns they’re too remote from the trades they manage, they said. Spokespeople for the banks declined to comment.

At Citigroup, for example, the bank is finalising its post-Brexit staffing and some senior traders of European assets have little clarity on where their future is going to be, people familiar with the matter said. The firm has recently made several senior appointments to its European markets and securities services unit.

Some bankers expect regulators to require people to migrate despite Covid travel restrictions if a bank still has virtually all sales and trading staff working on EU business from home in London. Some regulators have been regularly checking whether banks’ entities on the continent are fully operational and adequately staffed, the people said.

That approach means some are finding themselves caught between the demands of their industry and public health measures that aim to restrict movement. The individual situations were described by people with knowledge of the deliberations, who asked not to be named discussing personnel matters. A number of traders are refusing to relocate overseas for personal reasons such as home-schooling obligations.

The specifics of banks’ relocations plans are shaped by the countries they chose for their new or enlarged hub inside the EU.

Criminal sanctions

Countries including the Netherlands have permitted traders to stay in Britain for now, acknowledging that moves will happen towards the end of the year, the people said.

France’s Autorite des Marches Financiers has warned that firms face criminal sanctions if they don’t have sufficient personnel to ensure prudent risk management in their EU offices.

Broker TP ICAP has already paid the price for failing to move staff as quickly as regulators would like, saying recently it was prevented from serving some of its EU clients because it hadn’t completed its planned relocation of staff to Paris.

Consultancy EY estimated in September that financial-services firms operating in the UK had already shifted about 7,500 employees and more than £1.2-trillion of assets to the EU ahead of Brexit, though that was less than initially feared.

“The current situation is by no means perfect, but it isn’t as bad as some scenarios banks would have been modelling for,” said Tom Merry, an MD in Accenture’s banking strategy practice.

Still, these migrations are only the first phase of Brexit for the financial industry.

The sector was sidelined in the trade deal struck with the bloc by Prime Minister Boris Johnson, and cross-border trade for many UK financial firms will depend on so-called equivalence rulings on whether each side’s rules are robust enough. EU officials have said the bloc’s in no rush to make these decisions.

Almost five years since the Brexit vote, firms cannot afford to wait much longer for clarity. “Banks cannot rely on equivalence for their long term planning. They need to think about their footprint in the long run,” said Merry.

Bloomberg