European Banking Authority

The EBA published on 25 June a second Opinion on preparations for Brexit, a follow-up to its Opinion of October 2017. This Opinion is relevant to UK financial institutions (banks, investment firms, payment service providers, electronic money institutions and creditors and credit intermediaries, collectively “firms”) that provide services to the EU27 (whether directly or by establishment) and also to EU27 firms with counterparties, clients or customers based in the UK (whether directly or by establishment).


The EBA has been working with national competent authorities (NCAs) across the EU, including the European Central Bank (ECB), to ensure that firms:

  • adequately identify and address the risks implied by the UK leaving the EU without a ratified Withdrawal Agreement being in place by March 2019, and that they implement relevant plans to mitigate the risks of such a scenario; and
  • consider their customer protection obligations in light of this scenario and provide clear information to customers whose contracts or services may be affected by Brexit as soon as possible and in any event no later than the end of 2018.


As a result of its monitoring of contingency planning and other Brexit preparations undertaken by firms, the EBA has concluded that:

  • planning should advance more rapidly in a number of areas including data transfer and storage, contract continuity and access to financial market infrastructures (FMIs), as well as a new focus on customer communications;
  • where planning is occurring, some firms seem to have been delaying the implementation of some necessary actions;
  • firms should not rely on public support or solutions, since these latter may not be proposed and/or agreed in time.

The EBA highlights the “material possibility” that the UK could leave the EU without a ratified Withdrawal Agreement in March 2019 (and thus without a transition period), and states that progress in the preparations of firms for such a scenario has so far been inadequate.

Given the uncertainty regarding the ratification of a Withdrawal Agreement, the EBA indicates that firms need to take mitigating actions without further delay.

Our assessment

This Opinion is short, sharp in places and to the point. It takes its October 2017 predecessor as a starting point, but focuses on a shorter list of concrete actions that the EBA expects of firms and NCAs, and conveys a sense of urgency and purpose. This is consistent with the EBA having to plan for maximum change, as it has no legislative fixes in its gift for the range of “cliff edge” issues that firms will face if the UK leaves the EU without any transition period. It also accords with messaging from the European Commission and others that firms, rather than governments, have the primary responsibility to try to address EU exit issues. The recently convened ECB and Bank of England joint technical group on Brexit-related risks could help in these areas but the EBA clearly does not yet feel able to recommend that firms and supervisors rely on that.

Many of the issues were covered in the October 2017 Opinion but the section on customer communications, the associated deadline of end-2018 and expectation that plans are communicated to regulators are new. While clear customer communications are essential, there have to be questions about how much clarity firms can convey if, by the end of this year, there is continuing uncertainty about whether the Withdrawal Agreement will be ratified and what the UK’s post‑Brexit relationship with the rest of the EU will be.

Firms will find it hard to meet some of the EBA’s expectations in full. For example to take full account of higher capital requirements for derivatives cleared through non-qualifying CCPs – assuming that UK CCPs are not deemed as “qualifying” CCPs for EU 27 firms and vice versa – in their capital planning, would imply a material increase in capital for some firms.

Much will depend on how supervisors work with firms to implement these expectations. An inflexible approach could require firms to take a number of costly actions from which they may not derive direct benefits. The EBA recognises that the actions it expects will entail costs, which are, in its view, justified to avoid the financial stability risks resulting from the departure of the UK from the EU in March 2019 without a transition period. An increased focus on “cliff-edge” planning from European regulators is likely inevitable unless this week’s European Council announces greater progress than currently expected towards agreeing the Withdrawal Agreement.

Firms should engage early with NCAs, the ECB and resolution authorities (including the Single Resolution Board) on the impact of this Opinion on their own plans.

Risk assessment and preparedness

The Opinion highlights the need for NCAs to ensure that firms assess the implications of Brexit and respond where relevant. In particular, firms should:

  • identify the risk channels arising from the UK leaving the EU without a ratified Withdrawal Agreement in March 2019, including by taking into account the EU Commission’s notices to stakeholders. The risk channels to consider include, but are not limited to: (i) direct financial exposures to UK or EU27 counterparties; (ii) existing contracts with EU27 or UK counterparties; (iii) the reliance on UK or EU27 FMIs; (iv) the storage of data in, and transfer of data to, the UK or EU27; and (v) the reliance on funding markets in the EU27 or the UK;
  • assess the implications of these risks materialising for their liquidity and solvency positions, their business model, plan and strategy, and their capital planning. The assessment should also consider whether continued access to the EU27 or UK market is desirable. If so, firms should assess how to deal with existing business and contracts, as well as their obligations to their customers;
  • ensure that they have the necessary regulatory permissions in the EU27 and the UK to conduct new business, and continue existing business. Applications for regulatory permissions to conduct new/expanded business should be submitted as soon as possible to be processed before March 2019. This should be read alongside the ECB’s Brexit Q&A which make clear that banks which fail to submit their applications for authorisation by the end of this month or submit poor quality applications have no guarantee of the authorisation process being completed by the end of March 2019. Moreover, the ECB will process these applications as they are submitted, i.e. on a “first come, first served” basis;
  • adjust their booking model to take into account how and where risk is managed, the firm’s recovery and resolution arrangements, and the resilience of the new entity;
  • ensure that they do not outsource their activities to the extent of becoming “empty shells”, and maintain the capability to manage the risks associated with outsourced activities from the first day after Brexit;
  • identify which existing or future contracts will be affected and how to mitigate the resulting risks, including by changing the terms of the contracts. Given the length of the process, the EBA recommends starting to make the necessary changes as soon as possible;
  • map where their data, and those of their clients, are stored and processed, and assess, taking into account the provisions of the General Data Protection Directive, whether they need to transmit these data to another location, i.e. in the UK, EU27 or other third country. In the event that firms do need to transmit data across borders they are asked to consider mitigating actions;
  • identify the FMIs to which they need access either in the EU27 or the UK, consider alternative FMIs in case their existing access is curtailed as a result of Brexit, and ensure that they are able to transfer to those alternative FMIs in a timely manner;
  • assess their reliance on wholesale funding and their ability to maintain this access if a Withdrawal Agreement is not ratified by March 2019. Firms should consider the maturity profile of the relevant funding, especially around March 2019, and the implications for their liquidity positions and business activities; and
  • inform the competent and resolution authorities of the results of their risk assessment and provide a detailed plan, along with the timeline, of what they are doing to mitigate the risks.

For firms subject to the Bank Recovery and Resolution Directive, the EBA highlights that much of the above work should already have been conducted in the context of firms’ recovery and resolution planning. More specifically, these firms should:

  • assess the extent to which their MREL-eligible liabilities are issued under UK or EU27 law;
  • ensure that their existing MREL-eligible instruments will remain eligible after the departure of the UK from the EU; and
  • ensure that, if they choose to issue new non-MREL liabilities, these can credibly be converted or written down through the inclusion of bail-in recognition clauses.

Customer communication

The EBA’s Opinion emphasises the need for firms to assess carefully their obligations towards customers, and take the necessary actions to ensure the continuity of services, especially with regard to their continuing contractual commitments.

Firms should therefore provide clear information to customers whose contract/service may be affected, as soon as this information becomes available, and no later than the end of 2018. The information should be clear, in plain language, present the next steps in a simple way, and highlight the actions to take along with realistic timelines.

The information should cover:

  • the implications of the UK’s departure from the EU on the firm and its business, and on the relationship between the customer and the institutions;
  • actions that the firms is taking to prevent detriment to customers;
  • the implications for customers from any corporate restructuring and preparedness activities, particularly changes to contractual terms; and
  • information on any contractual and statutory rights of the customers, including their right to cancel contracts.

Next steps

The EBA will continue monitoring these developments and the extent of firms’ contingency planning. Firms are encouraged to act as soon as possible so as to be prepared for all possible Brexit scenarios, including the absence of a ratified Withdrawal Agreement in March 2019.



David Strachan - Head of EMEA Centre for Regulatory Strategy, Deloitte

David focuses on the impact of regulatory changes - both individual and in aggregate - on the strategies and business/operating models of financial services firms. David joined Deloitte after 12 years at the FSA, where in his last role, Director of Financial Stability, he worked on the division of the FSA into the PRA and the FCA.

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Vishal Vedi - Partner, EMEA Leader for Risk and Capital Management

Vishal is a Partner in Deloitte’s Risk Advisory Practice in London. He leads Deloitte’s Brexit Financial Service proposition and has more than 18 years’ experience in the financial services sector. Vishal is Deloitte’s EMEA leader for its Risk and Capital Management service line and he sits on the steering group of the Deloitte Centre for Regulatory Strategy. Vishal has in depth experience of dealing with complex risk, regulatory and governance issues both in the UK and internationally and has worked with many of the world’s most significant financial institutions.

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Mark Adams - Senior Manager, EMEA Centre for Regulatory Strategy, Deloitte

Mark has led a number of Brexit projects at G-SIBs and tier 1 firms, and is a key regulatory advisor across Deloitte’s Brexit work, as well as advising on resolution issues. Prior to joining Deloitte he helped to establish the resolution functions of both the Bank of England and European Banking Authority and led the EBA’s policy development work on topics including TLAC/MREL.

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Morgane Fouche - Senior Associate, EMEA Centre for Regulatory Strategy, Deloitte

Morgane is a Senior Associate in Deloitte’s Centre for Regulatory strategy, where she focuses on FinTech regulation. She joined Deloitte in 2017, after working as a consultant on competition policy at an international financial organisation. She also has previous experience working in academia and the French public sector. Morgane holds a dual degree in International Relations from the London School of Economics and the Paris Institute of Political Studies.

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