Given how Brexit negotiations have progressed to date, banks may already be factoring in a Hard Brexit as there have been some high-profile relocations thus far with a recent EY report stating that 59 financial firms have already announced relocations to other European cities. Dublin, for example has already had its fair share of good news. Following the announcement that JP Morgan purchased 200 Capital Dock, Bank of America and Barclays both confirmed that they have chosen Dublin as their main EU base post-Brexit with both companies committing to expanding their existing workforces in the capital where they employ 700 and 120 employees respectively. In particular, Barclay’s have estimated that it is likely that they will have to relocate 150 front and back office investment jobs to Dublin which are likely to be housed in Green REIT’s soon-to-be completed One Molesworth Street where it is understood that the bank has agreed rental terms to occupy 60,000 sq ft.
The Oliver Wyman report highlights that the contingency plans of the majority of Banks are concerned with creating a “Day One operating model” in order to guarantee that their ability to provide an uninterrupted service to the clients is not compromised by a Hard Brexit. Presently, banks are engaging in what the report terms “no regrets moves” which are actions that give banks room for manoeuvre but which are relatively inexpensive, such as applying for licences in EU jurisdictions. Nonetheless, the report warns that over the next 6-12 months, banks may have to take more decisive action that will be more expensive and difficult to reverse such as providing new capital into EU entities, relocating employees, employing senior management, and constructing dealing room infrastructure. This will come about as a result of tougher EU regulation as the ECB have already stated that they will not approve licenses for ‘shell companies’ and that any licence applications must demonstrate ‘adequate local risk management, local staff and operational independence.
Such action overtime would result in the break-up of the EU financial system with banks selecting a multitude of locations depending on factors such as their existing legal entity structures and customer profiles and priorities. The report cautions that the creation of networks of subsidiaries and branches in various cities across the continent could generate additional costs for the EU financial system, with the report estimating that between $30-$50 billion could be required for the establishment of new European entities. The reports also highlights other costs could also emerge such as the duplication of tasks that previously occurred in London as well as extra capital requirements resulting from the failure to achieve sought-after regulatory treatment on a variety of issues.