Banks' Brexit Relocation Plans Inadequate, ECB Warns

Some of the plans submitted by UK-headquartered banks wishing to continue to operate in the euro area after Brexit have been criticised as inadequate by financial regulators.

Some of the relocation plans submitted to the supervision arm of the European Central Bank (ECB) for approval "seem to lean towards" the use of 'shell' companies, and a structure that is "overly reliant on group entities in third countries", the regulator said in an update. It is particularly concerned about the use of 'back to back' risk transfer models, in which firms transfer risk to risk management and governance functions located outside of the EU.

"Banks do not only need to be well-capitalised and have sufficient liquidity and funding," said ECB Banking Supervision in its statement. "They also need to have substance locally. In other words, there cannot be empty shells or letter box banks."