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Bank of England says Brexit transition desirable for UK, EU banks

Reuters  |  LONDON 

By Huw Jones

(Reuters) - The of said a transition period after the leaves the European Union would give banks more time to make orderly changes as Brexit poses risks to financial stability.

With due to leave the bloc in March 2019, the BoE's Prudential Regulation Authority (PRA) said it faces heavy demands from Brexit fallout on banks and insurers.

Deputy Governor and PRA Chief Executive Sam Woods said "some form of implementation period is desirable" between leaving the bloc and start of new trading terms to "give and firms" more time to make necessary changes.

But he stopped short of saying what sort of transition he wanted in a reply to Nicky Morgan, new chair of parliament's Treasury Select Committee, who asked him this month for his views on the design of such a period.

The government has not presented the with any firm request for a transition period as it still seeks internal consensus.

UK-based firms are not waiting for clarity and are announcing new hubs in the EU27 to be sure of serving customers there after March 2019 - and avoid the destabilising ruptures in financial links the fears.

Woods had asked banks to spell out how they would cope in particular with a "hard" Brexit where crashes out of the with no transition or trading deal.

In a letter to Morgan made public on Wednesday, he said 401 responses were received, which revealed "significant issues for many firms" and the will reach a view on the plans in the autumn.

The submissions provided "further evidence" of risks the had already identified, specifically relating to the continued servicing and performance of existing contracts and restriction on data transfers.

There could be a sharp rise in the number of insurance policies shifted from one country to another, a switch that involves the courts, he said.

"Re-structuring by firms to mitigate risks to their business will in general increase complexity." Dislocation and fragmentation of markets could bump up costs and cut activity.

The will need to ensure that supervising firms with links between the and a outside the bloc, is still doable, he added.

The PRA faces having to authorise and supervise a significant number of additional firms, which could place a material extra burden on resources, Woods said.

is home to branches of banks from continental Europe and they face having to become subsidiaries, meaning they would be directly supervised by the PRA.

Woods said the issues set out in his response to Morgan "pose a material risk" to the PRA's objectives as a supervisor, and that this work is a top priority.

"It is incumbent on us to manage this burden but we may have to make some difficult prioritisation decisions in order to accommodate it," Woods said.

(Reporting by Huw Jones, editing by Pritha Sarkar)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, August 09 2017. 06:56 IST