Exclusive: U.S. regulators query banks on their 'Brexit' contingency plans - sources

Wed Apr 20, 2016 10:56am EDT
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By Anjuli Davies and Rachel Armstrong

LONDON (Reuters) - U.S. financial regulators are demanding regular updates from Wall Street banks about their contingency plans should Britain vote to leave the European Union, banking and regulatory sources told Reuters.

Scenarios under scrutiny range from how their London operations would handle lengthy uncertainty if Britons opt to quit the bloc in a June 23 referendum, to whether they could still offer financial services in continental Europe from a non-EU Britain.

The Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC), which share responsibility for supervising U.S. banks, have told the lenders to present specific plans for their businesses in the event of a "Brexit", three sources said.

"We've been actively asked to do this within the last six weeks. It involves scenario planning, stress testing different outcomes," said one banking source. "You pick a highly impactful, negative scenario that's bad but plausible and you work through the implications for the business."

As well as the U.S. regulators, the Bank of England is also seeking similar information from domestic and foreign banks operating in London, said the sources, who wished to remain anonymous as the process is private.

London's financial sector, home to many international banks, is among the industries with the most to lose if the world's fifth-biggest economy leaves the EU, according to many analysts who say an exit could lead to thousands of banking jobs shifting to the euro zone.

The European Central Bank is pushing hard for banks to move euro-denominated transactions from London, which lies outside its jurisdiction, to the euro zone where it can supervise the business more easily.

A vote to leave would be particularly difficult for U.S. investment banks since most run the bulk of their European trading operations out of London offices.   Continued...

A British Union Jack flag and a European flag fly on the Amiens city hall during a Franco-Britain summit in Amiens, northern France, March 3, 2016. REUTERS/Philippe Wojazer