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The ink is barely dry on the UK’s Article 50 letter, but finance lobby group AFME says there is already a “substantial amount of evidence” that wholesale banks and their supervisors and clients will struggle with the two-year time for negotiating Britain’s EU exit.

London-headquartered AFME, which represents banks and other financial market participants in Europe, has become the latest lobby group to publish dire warnings about the perils of a speedy Brexit.

Opening the 40 page tome, AFME boss Simon Lewis says:

Brexit creates uncertainty for all sectors of the economy, but particularly those such as wholesale banking which have a large share of cross-border business.

There is already a substantial amount of evidence on the challenging implementation issues facing clients, supervisory authorities and wholesale banks.

Both private firms and supervisors “will clearly need more time to prepare effectively for Brexit than the two years provided for by the Article 50 process”, he added, echoing previous calls by the industry for a transitional period.

The specific difficulties that AFME predicts for wholesale banking include:

  • International banks based in the UK must establish or expand EU 27 entities, secure the right people and premises, and integrate with new market infrastructure
  • EU27 supervisors face extra demands, including licencing, model approval and ongoing supervisory duties, in an environment where “expertise in markets supervision is in relatively short supply”.
  • Wholesale banking clients face potential disruption to long-dated cross border contracts and EU27 companies face capital raising challenges as London’s financing hub fragments

AFME suggests dangers could be reduced with:

  • Close co-ordination between the EU27 and the UK on legal certainty, financial stability risks, market capacity and supervisory policy
  • “Flexibility” from policymakers “to support successful implementation of any change programs by the wholesale market participants, including on contracts, entity approval and licensing, as well as model approval”.
  • A transitional period. “The sooner that a phasing-in period is confirmed then the smoother the adjustment process will be.”

(Image: Bloomberg)

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