Two years after Britain voted to quit the European Union, French banks operating in the UK are yet to find relief. As the March 2019 deadline looms, and both sides continue to struggle with negotiations, the likelihood of a ‘hard’ Brexit becomes more likely by the day.
Even with a transition period ending in December 2020, this buffer time must be used to finalise scenario analysis, refine risk-models, strengthen contingency plans and migrate staff and operations.
Despite its disruptive forces, Brexit could be a blessing in disguise for French banks. We have developed significant capabilities to mitigate the effects of current challenges by providing a clear view of current readiness for different scenarios and capture the unique growth opportunities that present themselves.
A forced march for readjustments…
French banks have a significant market footprint in the UK, ranging from approximately 1,000 staff at Credit Agricole, 4,000+ at Société Générale to approximately 8,500 at BNP Paribas.
The common view, irrespective of staff numbers, seems to be a cautious stance on Brexit with each closely monitoring official discussions while actively preparing for large-scale transformation.
The challenges are many, ranging from legal entity management, to post-Brexit regulatory/compliance requirements and market infrastructure/technology changes. How comprehensive are banks’ contingency planning? And how agile is their execution capability?
French banks have made few public statements, but the perceptive observer will spot some indisputable preparations, such as the creation of Brexit-dedicated teams, staff relocations to Paris and business reorganisations.
The answer may be less clear than many would be comfortable with, even within banks themselves. But we believe we have the answer.
… and a blessing in disguise
Despite the disruption, Brexit presents a unique opportunity to leverage Paris as a major financial hub in a more integrated Eurozone, and for French Financial Services Institutions (FSIs) to gain an edge over their competitors.
Paris is a major contender in the finance job market through roadshows and charm offensives such as ‘Choose France’, and the creation of a new flat tax on capital income. Ending the wealth tax on financial assets is next on the agenda. Indeed, over 4,000 job moves are expected to move from Paris from London in February 2018, according to Reuters, tying with Frankfurt.
Far from exiting the UK market, French banks are on the lookout for strategic opportunities and how to expand their footprint in the UK. A major French investment bank recently announced the strengthening of its trading workforce and its strategy to service UK small-to-medium enterprises. A similar endeavour for another French universal bank is underway, since it announced their intention to buy stakes in three independent UK M&A firms.
It’s still a risky ride
Capitalising on opportunities does not disguise the fact that Brexit is a risk. Hard exit options, coupled with a slowdown of both UK and Eurozone economies, could severely weigh on French banks’ capital requirements and prudential provisions.
Anticipating this risk, the French High Council for Financial Stability (HCSF) activated the ‘Countercyclical Capital Buffer’ for the first time, raising it from 0 to 0.25 percent of a bank’s Risk-Weighted Assets, effective July 2019. How thoroughly are French banks assessing the various possible UK-EU post-Brexit relationships in their risk models? These questions form part of Capco’s ‘Health Check’ Questionnaire, a tool developed to help firms assess their preparations in response to new requirements.
Brexit is a paradigm shift that will reshape the French economic and financial sector with unknown consequences. We believe that French banks will need to demonstrate strategic thinking, agile contingency planning, tactical and prompt execution at core, and Capco can support throughout this process.
Working exclusively with the financial services industry and correspondingly deep industry-tested specialist experience, Capco brings deep cross-disciplined expertise to assist organisations in determining current state readiness, overcoming uncertainty and disruption, weighing up their post-Brexit options, and maximising the benefits of this change.
Find out more about how Capco’s Brexit Toolkit can help you to be ready ahead of March 2019.