On May 16, the European Central Bank (ECB) published an article on the impact of a potential Brexit transition period (for more information on the proposed transition period, please see the Corporate & Financial Weekly Digest edition of March 23, 2018).

In the article, the ECB sets out how the transition period affects its expectations of banks’ preparations for Brexit:

  • The ECB expects banks to continue to prepare for all possible eventualities. It notes the uncertainty caused by the fact that the precise content of the UK-EU withdrawal agreement will not be known until late 2018, as well as the risk of there being no transition period if such agreement is not ratified by all parties.
  • Banks that are planning to relocate activities from the UK to the euro area must submit their authorization applications as soon as possible. The ECB and national supervisors expect to receive any such applications by the end of the second quarter of 2018 at the latest. The ECB states that banks should use the transition period to implement their Brexit plans and to adapt their operations to the impact of the UK becoming a third country, rather than using the transition period as a reason to delay Brexit planning.
  • The ECB is prepared to provide flexibility to enable banks to meet certain supervisory expectations and build up their capabilities in the EU. During this “build-up period,” the ECB and national supervisors may allow more time for banks on a case-by-case basis to meet expectations regarding their local risk management capabilities and governance structures and to move to an adequate and balanced business organization within the EU. The ECB and national supervisors will take decisions on a flexible approach to individual banks based on detailed and reasonable business plans for all EU operations and a clear understanding of banks’ long-term target operating models.

The ECB’s article is available here.