Brexit and the EU Banking Sector: from the Fundamental Freedoms of the Internal Market to Third Country Status

Andrea ENRIA * Chair of the Supervisory Board, European Central Bank (ECB). Contact: Andrea.Enria@ecb.europa.eu.

The Brexit referendum has fundamentally changed the relationship between the United Kingdom and the European Union, also within the banking sector. With the United Kingdom becoming a third country from an EU and a single European market perspective, overseeing an orderly relocation of banking activities to the EU has presented significant challenges. In fact, European customers can no longer be served directly from the United Kingdom. This contribution explains how the EU and the European Central Bank (ECB) in particular are overseeing this relocation process, and describes the ECB's supervisory approach in dealing with a number of thorny issues raised by Brexit. The ECB has been firm in its principles, particularly its “no empty shell” policy requesting banks to locate within the EU strategic and risk management capabilities commensurate with their level of risk. But it has also been flexible and proportionate in applying those principles and very keen to establish intense and transparent cooperation with the UK authorities. This is indispensable to support the significant amount of cross-border banking business which will continue to characterise our markets for the foreseeable future.

Introduction: a steep challengeIt has now been more than six years since the United Kingdom (UK) referendum on European Union (EU) membership took place. At that time I was working in London as Chairperson of the European Banking Authority (EBA), which had been created a few years earlier to deliver greater regulatory harmonisation, stronger convergence in supervisory practices and closer cooperation among EU supervisory authorities, with the ultimate goal of supporting financial integration and stability in the single European market. While colleagues were disappointed and anxious about the EBA's imminent relocation to another European capital, we had to deal with the massive policy challenge of redesigning our relationship with the UK in the area of banking. As in many other areas of public policy, Brexit had an immediate disruptive…