FRANKFURT (Reuters) – Too many global investment banks continue to serve their euro zone clients from London and the European Central Bank plans to force them to relocate their senior management and trading activities to the bloc, the ECB Chief Supervisor, Andrea Enria.
The ECB has long struggled with the biggest players in the sector, which are reluctant to relocate their activities after Brexit, despite explicit requests from the ECB, which oversees the largest financial institutions in the bloc.
In a sign that patience is running out, Enria said the ECB would issue “binding decisions” to major investment firms, prescribing measures on a case-by-case basis.
“We want to ensure that incoming legal entities have governance and onshore risk management arrangements that are proportionate, from a prudential point of view, to the risk they generate,” Enria said in a blog post. “The real magnitude
relocation and the specific configuration of reservations will depend on the current configuration of each bank.”
Banks could be required to appoint a trading desk manager within the Eurozone legal entity or to ensure that the desk has the right infrastructure and the number and seniority of traders to manage risks locally, the ECB said.
They may also be required to establish a strong governance and internal control framework for remote booking practices and to ensure limited use of intra-group hedges.
Of the trading desks assessed by the ECB at seven key institutions, around 70% still used a back-to-back booking model, a frowned upon practice in which a firm transfers risk to a third party or other intra-group entity which then hedges it. .
It also concluded that 20% of the desks were organized in split desks, where a duplicate version of the main offshore trading desk is established within the euro area legal entity to manage the share of risk therein. born.
These practices remove risk management expertise from the euro area entity, leaving the local unit vulnerable in the event of market turbulence.
“It is our duty to protect depositors and other creditors of the local legal entity, prevent disruption of banking services and preserve broader financial stability in our area of jurisdiction,” Enria said.
(Reporting by Balazs Koranyi; Editing by Elaine Hardcastle)
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