STAN Standard Chartered Plc

By Nina Trentmann 

Britain has twice delayed its split from the European Union and the terms of the separation remain unclear, forcing financial institutions to tackle a cardinal risk: the potential loss of the ability to freely offer products and services across the EU.

Banks that used their operations in London as a base to serve the rest of the EU, including Standard Chartered PLC, Lloyds Banking Group PLC and Goldman Sachs Group Inc., have been making major changes to prepare for Brexit. That includes expanding their operations in one of the other 27 EU countries to ensure uninterrupted service for European customers.

Such contingency plans increasingly look justified. Boris Johnson, the front-runner to succeed Theresa May as British Prime Minister when she steps down on Friday, said the U.K. should leave the bloc on Oct. 31, with or without a deal. Mr. Johnson is one of several would-be successors who are open to a no-deal Brexit.

"Firms in the finance industry have put contingency plans in place to minimize disruption for their customers in a 'no deal' scenario, but critical cliff-edge risks remain," said Stephen Jones, chief executive of UK Finance, an industry association.

Standard Chartered chose to make its Brexit preparations on the assumption that a no-deal Brexit would happen, a spokeswoman for the bank said. The company hopes that the operational and regulatory preparations it made as a result will prime it for growth across the EU, as well as insulating it from disruption.

Standard Chartered received a full banking license from Germany, turned its Frankfurt branch into a subsidiary, hired a local management team including a finance chief, and increased the number of employees based in Germany from around 100 to 200.

To meet stricter European liquidity and solvency requirements, the company pumped additional capital into the German unit, Standard Chartered Bank AG.

"It is important for German regulators that we are able to survive without our English mother," said Alexander Engel, who became chief financial officer of the subsidiary in March.

German regulators required more reporting and disclosure in different formats, prompting Standard Chartered Bank AG to upgrade its reporting software. "There are up to 400 reports on a regular basis that we didn't have to file before," Mr. Engel said.

And the bank moved some of its compliance and control functions from a shared service center in Chennai, India, to Frankfurt, the main hub for the bank in continental Europe, to satisfy German regulators. "German regulators have different views on what control is," Mr. Engel said.

The effort has been worth it, he said. Brexit is an opportunity for Standard Chartered to grow its footprint in Europe, according to Mr. Engel.

The bank is seeking new customers, in particular large companies with an international presence across industries. Mr. Engel said he plans to use the bank's expanded setup in Germany to grow its business. Among new offerings for European clients will be a cash-management facility, alongside existing foreign exchange, pooling and clearing services.

Standard Chartered already provides these services for corporate clients in London, but many German companies would prefer to use a bank based in the same jurisdiction as they are, Mr. Engel said.

For banks and companies, more hard work is ahead as Brexit nears. About GBP1 trillion ($1.27 trillion) in bank assets are being transferred by London-based banks to continental Europe, and up to 7,000 jobs could from the U.K. to Europe in response to Brexit, according to Ernst & Young LLP.

Some of Standard Chartered's clients have moved deposits to the new German entity and amended paperwork so that their continental European business is no longer booked through London. "The vast majority of clients have started the repapering process to be ready when needed," Mr. Engel said.

Other customers are taking a wait-and-see approach, reflecting doubts about when or whether Brexit will happen.

Banks have already spent an estimated GBP3 billion to GBP4 billion on getting Brexit-ready, a significant expense for an industry that is one of the core pillars of the U.K. economy, according to New Financial LLP, a think tank.

The changes that Standard Chartered made won't be rolled back should Britain decide to stay in the EU, Mr. Engel said. "The point of no-return has passed, independent of what happens on the political side."

Write to Nina Trentmann at Nina.Trentmann@wsj.com

(END) Dow Jones Newswires

June 04, 2019 09:53 ET (13:53 GMT)

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