PWC FRANCE ADAPTING TO A POST-BREXIT MARKET
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Consulting
PwC France
Adapting to a post-Brexit market
June 2018
Context and timeline
Since the ratification of Article 50, the withdrawal process has begun, May 2018
with a supposedly fixed timeline ending on March 29th 2019.
Brexit plans are
Latest political agreement on a transition period ending on being defined as
GDPR is entering into
December 31st 2020 could let us foresee additional time to prepare for June 2018
force
Brexit. However, with no agreement ratified, Banking
European Council
Institutions are prompted to prepare for a hard Brexit Summit
scenario.
As negotiations are moving forward, numerous uncertainties October 2018
remain and, with a shortening timeline, it has become urgent for European Council
Financial Institutions to carry on with their Brexit programs. Summit – Ratification
process expected to
From strategy to execution, each step is key for Banks to efficiently begin
prepare for this structural change. December 2018
European Council
Summit
29 March 2019
At 11PM, UK should have
exited EU (depending on
negotiations regarding
transition deal) 31 December 2020
End of the
transition period (to
be confirmed)
PwC Adapting to a post-Brexit market 2Preparing for Brexit: announced relocations
As at May 2018, many banks have already announced the relocation of parts of their activities
and staff from the UK to the EU27. While some banks have elected one central hub for their
European activities post-Brexit, others have chosen to relocate in several European cities. At less
than a year before the Brexit, banks must engage their Brexit plan, especially if it includes
regulated activity relocation and therefore license application.
Frankfurt
Dublin
Paris
Benelux
PwC Adapting to a post-Brexit market 3Mastering your Brexit Program
Most banks are now beginning to focus on implementation, including determining their business/operating model. Following a PwC analysis,
here is a scheme of Brexit readiness maturity level in peer Banks.
Strategy
No analysis to date Identification of potential location Identification of potential location Preferred location confirmed
options and limited impact analysis on options with detailed impact analysis
Brexit scenario on Brexit scenarios
Regulatory
approvals No regulatory approval Comprehensive list of required Regular regulators
High level view of required regulatory
application application initiated regulatory approvals identified. Team engagement and approvals
approvals from BAU teams. No team
mobilised and application will be application initiated
mobilised and no application initiated
initiated once location decision taken
Execution No plan and no budget High level plan document but no
Detailed plan documented and some Execution in progress
initial activities initiated, including
dedicated implementation activities
client and products analysis and
initiated
balance sheet impact
Actions already Remaining challenges to be
Target situation
undertaken by banks completed before Brexit
First topics to be addressed in a short-term period
Identify regulatory Identify staff affected
Design the way in Undertake the legal Design how
Design an appropriate approvals required, by planned Develop a
which the bank will and administrative transactions are
structure of submit applications for relocation, manage Programme of
do business after activities required to allocated to trading
subsidiaries and approvals and compliance with activities, undertake
Brexit (locations, set up new legal entities books and legal
branches based on the additional information immigration rules, and programme
processes/activities, and implement the new entities, and how risk
target location model requested, and manage manage relocation management
people, …) legal entity structure is managed.
process to completion logistics
PwC Adapting to a post-Brexit market 4Brexit program: a 3-step way towards readiness
Step 1 Step 2 Step 3
Strategy Regulatory approvals application Execution
How can we help for this step ? How can we help for this step ? How can we help for this step ?
expertise
PwC
• scenario preparation and analysis • assistance to RBP preparation, • Programme management,
• Impact assessment... • advisory services related to • client outreach preparation,
regulatory communication • contract assessment...
Set up your Brexit strategy Apply for regulatory approval Implement changes
• Banks should ensure that plans for • A pre-requisite before implementing • Where required by changes in legal
post-Brexit arrangements are your Brexit strategy: As your entity structure, regulatory
Considerations to keep in mind
consistent with the ECB’s strategy may imply a legal re- expectations on the location of sales
expectations. structuring, a phase of regulatory and trading activities, banks will
approval will be necessary have to consider moving sales and
• The ECB confirmed that it will not
trading activities in a legal and tax
allow banks to operate with a • New licences take time: obtaining a
efficient manner and making
minimal ‘brass plate’ presence in new banking license, whether in the
associated changes to processes,
the euro area. The ECB expects UK or EU, is a time consuming and
technology, and people.
banks to have significant risk intensive process, typically taking at
governance capability locally, and to least 12-18 months. • Setting a strategy for Brexit is also
manage all material risks at the an opportunity to rethink your
• Appropriate resource will need to be
local level. The ECB will also expect organisation, and improve the way
dedicated to the process: firms are
euro area banks to be operationally you do business
generally not experienced in what
independent and not overly reliant
local regulators expect from such • Design and implement the new
on outsourcing functions or
applications Operating model derived from your
services.
Brexit strategy
PwC Adapting to a post-Brexit market 5Set up your strategy
Step 1: Step 2: Step3:
Strategy Regulatory approvals application Execution
Feasibility analysis
• Document and prioritize drivers for new legal structure/booking strategy
• Assess initial feasibility
• Estimate overall Balance Sheets impact including RWAs, Capital, Leverage ratio
Challenges and • Set up project governance
key issues to Migration strategy analysis
be considered • Assess key implications of migration strategy on: Tax, Legal and Compliance, Finance & Risk and Clients
• Develop critical assumptions
• Assess end-to-end infrastructure gaps
• Assess migration strategy scenarios against set of key criteria (Assessment Framework)
• Document migration plan
Typical Feasibility analysis Migration Strategy analysis
(1 month) (2 months)
timeline &
milestones Framing document for strategy
implementation produced
Authorisation and Supervisory requirements Structural concerns Tax considerations
Engage early: When contemplating a relocation Consider alternatives: In considering Potential adverse tax consequences on
it is important to engage with potential National contingency planning, firms will need to migration: The transfer of assets from the UK
Competent Authorities (NCA) early in the process consider alternative entity structures which may for gains arising on the transfer of assets (e.g.
to understand their requirements and clarify be required post April 2019 to ensure continuity goodwill, IP, customer lists, IT systems) could
expectations around areas such as booking of business. The challenges and solutions will result in a host of “exit charges” including capital
What you need models, outsourcing, internal model approval, differ dependent on the firms’ business model gains, VAT and the extinguishing of tax assets ;
to know grandfathering and length/scope of any and legal structure (EEA incoming branch, UK The step plan to migrate to a new structure
transitional arrangements. legal entity, …) : will I need to create a new UK should include steps to minimise all these
Understand the ECB’s position : While NCAs subsidiary ? Will I need to authorize a adverse tax impacts on migration.
supervise the conduct of investment firms and new/existing EU entity ? Jurisdictional review: Firms will need to
other credit institutions, all credit institutions consider the tax regime in each relevant
need to be authorised by the ECB. The ECB has jurisdiction when considering their structure, as
made clear that it will not tolerate shell companies well as tax rates and reliefs.
or permanent back to back booking to London.
PwC Adapting to a post-Brexit market 6Apply for regulatory approvals : the case of ACPR
Step 1: Step 2: Step3:
Strategy Regulatory approvals application Execution
Timing
• In order to ensure continuity of business in case of a ‘hard Brexit’, authorization would ideally need to be granted 3 months prior to March 2019
• In principle, the application process (including preparatory phase) can take up to 18 months. For a UK authorized bank wishing to relocate to France,
this timeline can be reduced to 9 months (cf. ACPR’s ‘fast track and simplified process’ put in place in the context of Brexit)
Challenges and Outsourcing
key issues to • Minimum staff and resources requirements to be met from a French regulatory perspective, especially for deposit taking institutions
be considered • Possible outsourcing of middle and back office functions out of France, subject to strict conditions (in particular appropriate monitoring of internal
control and risk management)
Dependencies
• Access to information/documents required as part as the application and quality of first draft application
• Workload of Regulators’ authorization teams (in particular ECB)
Typical Pre application phase Assessment by regulators
(3 to 6 months) (6 to 12 months)
timeline &
milestones Preliminary meeting with ACPR Application submitted Obtain approval
to ECB via ACPR from ECB
Components of the French license Typically around Additional documents required by the regulatory authorities
application 100 / 150 pages
Shareholding structure During pre-application phase: project memo and step plan to be
Governance and organisation presented at ACPR preliminary meeting
Components of Business plan and forecasted
As part of the application file (appendices)
prudential ratios
the French Articles of associations
Staffing and technical resources Group chart
license
including IT inventories Last three balance sheets and certified operating accounts, etc.
application
Internal control, risk management and Draft agreements to be entered into with clients
compliance Draft outsourcing arrangements / SLAs,
Contractual framework (agreements Declaration/information to be submitted by capital contributors
to be entered into with clients and Declaration/information to be submitted by approved persons
outsourcing arrangement / SLAs) As the case may be, key internal policies (e.g. AML / risk mapping)
PwC Adapting to a post-Brexit market 7Execute the appropriate changes in the operating model
Step 1: Step 2: Step 3:
Strategy Regulatory approvals application Execution
Change of trade booking models and associated operational activities
Migrate some trading and essential support activities to target EU27 location
Duplicate some functions as some activities might have to be retained in current location
Change / update middle and back office processes
Challenges and Expand finance, governance and group processes in target/existing jurisdictions
key issues to Migrating customer contracts
be considered Update collateral management processes
Change sales and trading activity
Access to market infrastructure
Maintain access to market infrastructure including payment schemes, exchanges, clearing
Monitor interactions due to market infrastructure providers own structural changes
Typical Implementation enablement Implementation
(3 to 6 months) (6 to 12 months)
timeline &
milestones Onboarding of all relevant Kick-off of the Go live for the post-Brexit
stakeholders transformation project operating model
Changes of the location from which products & services are marketed and delivered to
customers
Impact on the supporting operational environment
Impact on the location where trades are booked and the legal entity responsible for managing
and bearing the risk of the trade (off-shoring, outsourcing models might be reviewed)
Potential
events and Changes in legal entity structure, regulatory expectations on the location
related May require to move sales and trading activities and make associated changes to processes,
impacts technology, and people
Restrictions on off-shoring / outsourcing models / changes to MOBO processes
May require establishing, not only a sales capability, but also the operations and infrastructure
needed to support the business conducted by the new entity
Higher delays of implementation & costs even in the event of smaller-scale changes
PwC Adapting to a post-Brexit market 8How can PwC help ?
Our cross border teams can support firms across their entire current and end state European and global footprint from strategy
through to embedding change.
Our in-house law firm, PwC Legal, works side by side with our business consultants to ensure clients are completely
supported across the full spectrum of their activities.
Restructuring and Regulations Human factors of Brexit
A single team across Europe comprising of strategy, tax, regulation We perform culture reviews which focus on behavioural reinforcers to
and legal specialists will advise on the legal feasibility and help manage the impact of Brexit uncertainty on staff morale,
implementation of a proposed European restructure, their behaviours, and the firm’s values resulting
and regulatory capital and liquidity implications, taking from strategy or organisation change.
into account local legislative and regulatory nuances
We can assist you in undertaking strategic
in the implementation of new business models.
workforce planning that maps out key activities
We rely on our Centre of Excellence and our
and determines the resource requirements to
network of experts based both in Paris and
meet business objectives. Including running cost-
London who are closely connected with
effective global mobility programmes, and ensuring
French/UK regulators in relation to Brexit
cultural alignment and integration.
topics, and understand ECB Brexit expectations.
Large transformation programmes Brexit programme assurance
We have extensive experience running large scale We can support firms to establish a robust
transformation programs, cutting across multiple programme governance and oversight
locations, topics and stakeholders, ensuring that the structure to report to the Board and senior
program and its stakeholders maintain the pace and stakeholders.
intensity that is needed for success, and
communicate this effectively to the Board and senior stakeholders. Additionally, we can provide comfort that their Brexit programmes are
designed to deliver the right outcomes, through high-level reviews of
Our approach to transformation considers all aspects of transformation: the key principals expected or deep dive views, which can be used to
from vision and strategy through to governance, data, processes provide the ‘path to green’ recovery plans for any issues
and communication, including PMO specialist support. identified.
PwC Adapting to a post-Brexit market 9Our areas of influence
Thanks to PwC’s involvement in various groups and think tanks, and our proximity with major actors such as the European Central Bank, we
are able to provide our clients with the very up to date insights and intelligence.
PwC study for AFME (Association of Financial Markets in Europe, Jan. 2017)
The study aim at accurately informing government officials and other stakeholders about the operational impacts and transformation challenges that
Brexit poses to the industry by providing a credible and granular fact-base against which they can assess the operational consequences of future UK-EU27
trading scenarios.
Financial markets
Think tanks
Regulatory
institutions
PwC France works with
PwC works with the European Central Montaigne institute, one of the
Bank most influential think tank in
France. PwC has been associated to the
Thanks to our work with the European work of the Think Tank and has
Central Bank, PwC can be a key discussion participated to a working group on “the
partner and liaise with the institution for our Europe of tomorrow”. Study : The
clients. Europe we need
Industries
Media
PwC France has written 2 articles for PwC works with Paris Europlace
Revue Banque, one of the reference Chamber of commerce since 2016
magazine for the financial sector
PwC is associated to the Think Tank
Brexit pour les banques : une transformation through working groups meetings on
sectorielle d’ampleur? (06/2017) different subjects to enhance the
Brexit: A new shape for Banks in Europe? PwC France is a member of the Franco- competitiveness and attractiveness of the
(11/2017) British Chamber of Commerce & Industry Paris financial center
PwC Adapting to a post-Brexit market 10PwC has a proven track record in Brexit-related assignments
PwC has engagement experience with Banks that could bring extensive industry and business knowledge to help proper
conduct of your potential projects.
Reg. Target
Reg. gap
Citation name Brexit strategy authorization Operating
analysis
filing Model
1. Implementing the optimal new booking model
2. Brexit impact analysis
3. ACPR authorization process #1
4. ACPR authorization process #2
Implementing Governance, Finance, Risk &
5. Compliance frameworks in accordance with French
regulatory requirements
6. Brexit PRA authorisation: booking model
Restructuring of two sister asset management
7.
companies in France
8. European Bank – Regulatory gap analysis
PwC Adapting to a post-Brexit market 11Focus on an assignment regarding license application process for a non-
European Bank
Assess and support Brexit plans and organizational changes for the client
Client challenge
The client is considering a shift of organizational model for its European activities. More specifically in France, the Paris entity decided to
accelerate its Brexit considerations and assess its strategic plans and future operating model within the group’s European structure.
Europe entity Europe entity
London-based London-based Paris entity needs to obtain a new
ACPR license by the end of
December 2018 and to undertake
Paris entity Paris entity appropriate actions to continue
Branch of the Paris entity will remain the branch of Branch of a third its business
London hub London entity but becomes the country bank
"branch of a third country bank"
Scope of our assignment Bid Team
Consulting
Mid-September, Paris entity has launched a “Brexit” transversal project across the company Financial
to design and deliver the necessary changes to adapt to the post-Brexit environment, in line Services
with the group strategy. PwC’s mandate is to support the Paris entity Brexit project team in
the following fields:
• License application process: the design of the future model implies a shift of the
X-LOS
Paris entity’s banking license; we’ll provide support and advisory throughout the
application process Tax & Legal
Services Regulatory
• Program Management: support in overall program initiation, planning and execution Center Of
• Regulatory Intelligence: provide regulatory alerts and share insights from our Brexit- Excellence
related discussions with public and private stakeholders
PwC Adapting to a post-Brexit market 12Focus on an assignment regarding license application process for a non-
European Bank
In the context of Brexit, the bank needs to file an application to the PRA for the authorisation of its London branch undertaking Global Markets
activities. We were engaged to provide advisory services in relation to the review of the Regulatory Business Plan (RBP) to be submitted to the
PRA and to assess the appropriate booking model set-up in the context of PRA and EBC new expectations.
Client challenge
The booking model section of the RBP needed to embed the PRA 6 booking models principles with which the bank needs to comply. In
addition, the ECB (who will receive and “approve” the RBP submitted to the PRA) also dictated 16 booking models expectations that need
to also be reflected in the submission to the PRA. Complying with the principles of both Regulators was a major challenge for the bank
especially in the way they presented their booking model.
Scope of our assignment
The client engaged PwC to provide advisory services in relation to the PRA
The application must include
Entity submission which entailed:
London branch - Document booking model practices and control environment,
PRA
UK regulator including monitoring and governance
Regulatory Business Plan to - Highlight major gaps with PRA and ECB principles/expectations
be submitted to the PRA 6 booking models principles - Review and recommend on communication towards both
Regulators
Our solution and approach
ECB In order to provide these, PwC:
European banking regulator
- Met numerous stakeholders in multiple functions in order to assess as-is
16 booking models vs. expectations
expectations
- Assessed major impact per function and define communication strategy
- Supported documentation of detailed considerations and assumptions
that BNPP needed to take into account when describing their booking
PwC lessons learnt model environment
- Align communication with multiple regulators with different expectations: PwC liaised with internal network in the UK and
Germany to better understand the Regulators’ expectations
- Syndicate key propositions to multiple stakeholders while exploring multiple options
- Increase knowledge around regulators’ expectations on booking models: PwC provided detailed review and
recommendations based on this insight to adapt communication towards regulatory bodies
PwC Adapting to a post-Brexit market 13Your contacts
Jimmy Zou Roles and responsibilities
Partner
Brexit Financial Services Jimmy has over 20 years of experience focused on strategic and management consulting for financial services
Leader for France institutions in France and Europe.
He is the Brexit Financial Services Leader for France and is a member our Brexit European Task force.
Office: + 33 1 56 57 72 13
Mobile: + 33 6 74 27 34 29 He represents PwC in various “Think tanks” such as Institut Montaigne or Paris Europlace.
jimmy.zou@pwc.com
Jimmy is also the partner in charge of our Insurance activities in France.
Nicolas Mordaunt-Crook Ericson Opou Timothée Huignard
Partner Director Senior Manager
Office: + 33 1 56 57 42 40 Office: + 33 1 56 57 58 78 Office: + 33 1 56 57 56 50
Mobile: + 33 6 43 31 82 20 Mobile: + 33 6 30 49 11 29 Mobile: + 33 6 75 75 51 54
nicolas.mordaunt- ericson.opou@pwc.com timothee.huignard@pwc.com
crook@pwcavocats.com
Roles and responsibilities Roles and responsibilities Roles and responsibilities
As a French qualified lawyer, Nicolas has assisted Ericson has over 12 years of experience focused on Timothée has over 9 years experience in banking
credit institutions, investment firms, asset the execution of critical and strategic initiatives for and capital markets. He has recently moved back
managers and insurance companies or blue chip organisations in the Financial Services from the London office where he worked
intermediaries in connection with the structuring industry. extensively on Capital Markets engagements. He
and operation of their business. developed a deep understanding of the front-to-
He has led a wide range of complex end-to-end
back processes and organisation.
He has extensive knowledge of laws and regulations engagements such as target operating model
that apply to different types of banking and design/deployment, business transformation, large He has conducted a number of international
financial activities in France, as well as of the core system implementation, and programs focusing on target operating and booking
procedures for obtaining relevant permissions or offshoring/outsourcing programs. model redesign, business migration and finance
licences. transformation, notably in the context of Brexit.
Ericson is currently leading PwC France’s Financial
Nicolas is currently leading PwC France’s Tax & Services Brexit taskforce. Timothée is currently co-leading PwC France’s
Legal Services Brexit taskforce. Financial Services Brexit taskforce.
PwC Adapting to a post-Brexit market 14You can also read
