“It’s not enough just to install a letterbox.” With these words Peter Lutz, deputy executive director at the German financial supervisory authority, closed a workshop on the Brexit organized for foreign banks. Since the United Kingdom has voted out of the European Union, it is now time for London-based banks to consider possible alternative locations. For many banks, Germany with its Hessian financial center of Frankfurt/Main could turn out to be the ideal location.
Frankfurt, the center of the European banking supervisory authority
Unlike London, which has lingered in “splendid isolation” for a long time, the supervisory authority has been busy as a bee in Frankfurt. First, Frankfurt is the home of the European Central Bank, which is not only responsible for the key interest rate but also coordinates the single supervisory mechanism (SSM) for the banks located within the euro zone. And also the German note-issuing Bundesbank has its headquarters in Frankfurt. The bank is responsible for the ongoing supervision of the financial institutions in Germany. And finally, a division of Germany’s overall supervisory authority the Federal Financial Supervisory Authority (BaFin) is located in Frankfurt.
This close proximity with all the relevant supervisory authorities ensures short distances, quick decisions, and personal contact with those responsible. In addition, in all probability the European Banking Authority will move from the Thames to the Main. London-based banks that have so far been in close contact with the EBA supervisors have even more reason to consider moving to Frankfurt.
European passport requires move of the institution
Banks and financial services providers that have so far been cooperating with the Financial Conduct Authority will be faced with a comparable supervisory authority in Germany, the BaFin. Usually, BaFin’s employees are fluent in English so that communication will be ensured. However, some differences will have to be taken into account. Although many aspects of financial market law have been harmonized in Europe, the German legislator and BaFin generally tend to be more careful and adopt more stringent regulatory requirements. This already led to some product interventions from BaFin in the past. For instance, BaFin suggested to prohibit or at least limit the distribution of products like Credit Linked Notes or CFDs. For those market players, who target the European market anyway, the meticulous supervision by BaFin and the Bundesbank will ensure full recognition of their German authorization all over Europe in case they are using the passporting system.
On the whole, Germany is an excellent location to continue to benefit from the European passport as provided in Art. 33 et seq. of the Capital Requirements Directive IV (Directive 2013/36/EU) even after Britain’s exit from the EU. According to Peter Lutz, it will not be sufficient to just send some employees to Germany while actually leaving the banking operations in London. A total relocation to Frankfurt is, however, expensive and many employees find it hardly conceivable to move to Frankfurt.
Developing an appropriate strategy early on
Institutions that plan to move to Germany should therefore develop an individualized strategy helping them to get under BaFin’s regulatory umbrella with the least possible effort and expenses. As exit negotiations are planned to start as early as in March, preparations should start soon. WINHELLER will be pleased to assist you in developing an appropriate strategy. Apart from the required expertise in banking supervisory law, we also have the necessary know-how in tax and corporate law enabling us to comprehensively advise your institution on the development of your strategy. In addition, we have maintained good contacts with the German supervisory authorities for years. We will be pleased to assist you in ensuring that your operations run smoothly even beyond the Brexit. Please do not hesitate to contact us at email@example.com or on +49 (0)69 76 75 77 80.