ECB Probes Whether Goldman, Peers Still Too Tied to London
(Bloomberg) -- The European Central Bank is stepping up scrutiny of global investment banks’ risk management within the region to ensure they’re not relying on London units even after Brexit, according to people familiar with the matter.
The ECB and national regulators are taking a granular look at where banks have key staff and book trades in order to ensure that risks related to European Union clients are accounted for in the bloc rather than slipping from their oversight, said the people, who asked to remain anonymous as the matter is private.
The review, known as “desk mapping,” encompasses the EU units of international banks including Goldman Sachs Group Inc, Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp, Barclays Plc and Morgan Stanley, said the people. The ECB has asked the banks to answer detailed questions about their risk-management setup including where traders and associated risk staff sit and how they process trades, the people said.
Almost five years after the U.K. voted to leave the EU, banks and regulators are still grappling with the practical implications amid uncertainty over what the long-term arrangements regarding financial services will look like. The ECB is seeking to rein in the practice of “back-to-back booking” where banks serve clients in Europe while holding capital and management in the U.K, on the grounds that it makes risks harder to police.
The review is a part of efforts to achieve comparability of current practices at the banks it supervises and ensure banks meet common benchmarks, one of the people said. The review has yet to conclude, making it difficult to determine which banks are furthest from meeting the ECB’s expectations.
“The desk-mapping exercise is at an early stage and still ongoing. Thus the ECB has not yet given feedback to individual banks on its outcome,” an ECB spokeswoman said in a statement to Bloomberg.
Since the 2016 referendum, hundreds of billions of dollars in assets and thousands of jobs have shifted to cities such as Paris, Frankfurt, Dublin and Amsterdam. While that hasn’t yet threatened London’s status as a global financial center, the EU has made clear it expects further changes in the coming years.
Read More: ECB Wants More Top Bankers at Lenders’ Post-Brexit European Hubs
Banks throughout the Brexit process have often been conservative in taking action, hoping to keep their options open in case a deal is struck offering more access between London and the EU.
The restrictions in movement brought about by the pandemic have thrown up additional obstacles to implementation, initially leading to a degree of leniency at the supervisor. The ECB has since said that lenders rolling out their Brexit plans won’t be allowed to use the ongoing pandemic as an excuse to delay relocating staff.
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