The Central Bank has the statutory responsibility for financial stability and has been working with the Department of Finance on Brexit-related issues since before the UK Referendum. The Department of Finance engages onan ongoing basis with the Central Bank and the NTMA on issues relevant to
financial stability and financial services.
The Central Bank is working closely with financial services firms to ensure that they have contingency plans in place for end March 2019. The Central Bank expects the firms to ensure they have robust contingency plans in place to minimise the impact on customers, investors and markets.
At a sectoral level, supervision teams in the Central Bank continue to engage with firms to ensure they are appropriately planning for plausible worst-case scenarios. This involves ensuring that existing Irish firms understand and are planning for the impact that Brexit will have on their businesses and their customers; and continuing to engage with those firms that are executing plans to move to Ireland, or changing their business models in Ireland.
The Central Bank continues to actively engage at the European Supervisory Authorities (EBA, ESMA and EIOPA) and ECB-SSM to assess Brexit-related risks and potential mitigants, as well as issues relating to on-going supervisory co-operation.
The Central Bank has published extensive information on Brexit on its website including an FAQ for financial services firms and consumers.
The European Commission, in its communication of 19 December 2018, indicated that following its assessment of the no deal scenario risks for the financial services sector, and taking account the views of the ECB and European Supervisory Authorities, a limited number of legislative measures are required to protect the financial stability of the EU. In summary, the EU has adopted a temporary and conditional equivalence decision for 12 months to ensure no disruption in central clearing of derivatives. A temporary andconditional equivalence decision for 24 months has also been adopted to ensure no disruption in central depositories services for EU operators currentlyusing UK operators.
The EU will provide regulations facilitating novation, for a fixed period of 12 months, of certain over-the-counter derivatives contracts where a contact is transferred from a UK to an EU27 counterparty. The process was informed by a joint Bank of England and European Central Bank working group analysing financial stability issues arising in a no deal Brexit.
The European Commission continues to highlight that in all sectors of financial services, financial services firms should continue to take all necessary steps to mitigate risks and ensure that clients continue to be served. Financial services are being actively encouraged to inform clients about the steps that they havetaken to prepare for Brexit.
A no deal Brexit could act as a trigger to key identified risks in the Irish financial system. Some level of market disruption is inevitable, but the financial system as a whole is expected to be resilient enough to withstand it.
The Department of Finance has worked closely with the Central Bank of Ireland (CBI) and the National Treasury Management Agency (NTMA) including through regular meetings of the Financial Stability Group and the Brexit Contact Group to oversee progress in this area. The CBI has also been working closely with financial services firms to ensure that they have contingency plans in place so as to minimise the impact on customers, investors and markets. The Department of Finance and CBI continue to stress that responsibility for contingency plans remains with individual firms.
In addition to firm-level contingency planning, including relocation from the UK to EU, the key actions taken in financial services have been:
Risks to consumers being able to access financial services are significantly reduced as the five largest retail banks are authorised in Ireland and large parts of the insurance sector are similarly authorised in the EEA, or will be authorised there before Brexit; The CBI continues to pursue a thorough and robust authorisation process. In addition, the CBI continue to engage with recently authorised firms to ensure that they continue to build out their operations and comply with their authorisation conditions; The CBI is also engaging with firms who have sought new authorisations since the article 50 extension; The CBI has written to UK financial service providers providing cross-border services into Ireland advising them of their responsibilities in this area and of the requirement where relevant to seek alternative authorisations; A material risk for customers of insurance firms and distributors who have not completed an adequate contingency plan in time, and who would be unable to fulfil their obligations to Irish customers in a no deal Brexit, will be mitigated by domestic legislation (Part 8 of the Brexit Omnibus Act).
This will enable UK and Gibraltar insurance undertakings and intermediaries to continue to fulfil contractual obligations to their Irish customers for a period of three years after the date of the withdrawal of the UK; EU equivalence decisions will apply until the end of March 2021 for Central Securities Depositories (CSDs) and end of March 2020 for Central Clearing Counterparties (CCPs). This means that these risks have been temporarily resolved for a no deal Brexit: potential loss of access to UK-based CCPs, which are used to clear derivatives; and access to a Central Securities Depositary, which is particularly important for Ireland as it allows for the settlement of Irish equities/ Exchange Traded Funds (ETFs). In Part 7 of the Brexit Omnibus Act, provision is made to support implementation of the European Commission’s equivalence decision under the Central Securities Depositories (CSD)
Regulation and to extend the protections contained in the Settlement Finality Directive to Irish participants in relevant settlement systems which are domiciled in a third country; Amendment to European Securities and Markets Authority (ESMA) regulations to neutralise the impact of transfers of uncleared derivatives contracts from a UK entity to an EU27 entity; The agreement of MOUs between EU and UK regulators to allow for continued cooperation post-Brexit (of particular importance to Irish funds industry); Approval by European Payment Council for UK to remain a member of Single Euro Payments Area (SEPA); UK legislation for a Temporary Permission Regime (TPR) to allow EU27 financial services firms to operate in UK for three years under certain conditions. For firms who do not apply for the TPR a Financial Services Contracts Regime will allow firms service UK contracts entered into prior to exit, in order to wind down their UK business in an orderly fashion.
Based on continued progress by firms with their contingency plans and the enactment of legislative and regulatory measures in the EU, Ireland and the UK, the risks to financial stability, the financial services sector and consumers of financial services will be reduced materially in the event of a no deal Brexit on 31 October with limited additional options for domestic mitigation in the event of wider market dislocation. The CBI is satisfied that from a financial stability perspective that the most material and immediate risks are now manageable and considers that significant progress has been made in mitigating many of the key cliff edge risks relating to a hard Brexit scenario.
The Department of Finance will continue to work closely with the CBI and NTMA through regular meetings of the Financial Stability Group and the Brexit Contact Group to review progress on contingency planning.
Over the coming months, the CBI will continue to focus on potential new risks that emerge as we get closer to Brexit date and will work closely with financial services firms to ensure that they have contingency plans in place so as to minimise the impact on customers, investors and markets.
The CBI will continue to engage with financial services companies planning to relocate activity to Ireland or changing their business models in Ireland.
Work will continue on the implementation of a CSD solution for post-March 2021 when the temporary equivalence decision will expire. This includes consideration of legislation to facilitate migration by industry to a new CSD based in Belgium called Euroclear Bank.The Department of Finance and the Department of Business, Enterprise and Innovation are engaging with the Office of the Attorney General on these proposals and may bring forward legislative proposals to Government in the coming weeks.