The banking industry have been asked to prepare for a "hard" Brexit in a PwC report titled, Planning for Brexit — Operational impacts on wholesale banking and capital markets in Europe. It aims to provide policymakers and industry experts information on how to handle Brexit, as well as addressing some of the likely challenges that the financial market will face.
A spokesperson for AFME has confirmed that Brexit will be a highly complex transformation for wholesale banks.
"Firms will need to execute Brexit transformation programs which will extend beyond Article 50 timescales and in many cases up to three years after Brexit has been completed; or even longer, if the post‐Brexit trading relationship between the EU and UK remains unresolved," a spokesperson for AFME told Sputnik.
The UK parliament entered a second day of debate on Wednesday, February 1, as to whether Britain should trigger Article 50, the two-year process by which the country leaves the European Union.
Sources close to the UK government say that the likelihood of the bill being passed is high, given the fact that the Labour and opposition leader Jeremy Corbyn has ordered party MPs to vote for triggering Article 50 under the threat of being sacked.
Once Article 50 is triggered it then allows for the negotiation process to start. Given that the UK PM Theresa May has already expressed a preference for a "hard" Brexit, the financial sector and businesses in the UK must be prepared for the outcome.
Banks based in London have five years overall to prepare and submit documents and business models, however most banks, if not all, are working towards a two-year plan, that will keep them in line with Article 50 regulations.
A spokesperson for AFME said that when banks execute their transformation programs, they will be heavily dependent upon a timely approval process of licenses by their new EU regulators.
According to AFME, banks are currently proceeding with a two‐year tactical plan to maintain continuity of service. However, these plans are likely to change, as an agreement of a new business model needs to be reached with EU regulators, who will have to approve it before the UK leaves the EU.
"Banks need to submit, as soon as possible, the structure of any interim business models that may be deemed acceptable immediately post‐Brexit," a spokesperson for AFME told Sputnik.
The banking industry has been in limbo since the EU referendum, as a result certain banks have decided to leave the UK. According to Anthony Browne, the chief executive of the British Bankers' Association, major banks are considering leaving the United Kingdom in the first quarter of 2017, while small banks plan to start relocations before Christmas.
"For banks, Brexit does not simply mean additional tariffs being imposed on trade — as is likely to be the case with other sectors. It is about whether banks have the legal right to provide services," Browne said, as quoted by the Observer.
A "hard" Brexit would deprive the country of the access to the EU internal market and the customs union, which could potentially result in tariff and non-tariff restrictions.