Issue 03 - 2020 MAGAZINE

Banks are preparing accounts closure of British expats

The Financial Conduct Authority has offered a degree of relief to expats by urging banks to provide two months prior notice

British expats living outside the UK in the European Union were shocked over news reports that their banks might close customer accounts as a result of Brexit. The country is in its transition period which was negotiated after Brexit finally happened on February 1. The transition period is coming to an end in December 2020 and until then everything is expected to remain the same for expats living in the EU. As per data published by the United Nations Population Division, around 1.3 million Brits lived in EU countries in 2019. Spain accounted for 302,000 of them and Ireland followed with 293,000 Brits living in the country. France was third with 177,000, Germany was fourth with 99,000 and Italy was fifth with 66,000. Some of the big UK banks like Barclays and Lloyds have already informed their customers, and others are still mulling the decision to close accounts.


In June 2016, 52 percent of the UK population voted in favour of leaving the EU. Since then, there has been a growing concern about the impact of Brexit on the UK’s financial sector. As a result, around 275 financial firms have moved a combined total of $1.2 trillion in assets out of the UK to other parts of Europe. Financial services regulatory consultancy firm Bovill said in a report that around 1,400 EU-based firms have applied for permission to operate in the UK after Brexit, with over 1,000 of those planning to establish their first UK office, which seems positive for the country in a post-Brexit setting. The UK also confirmed that it has no intention to further extend the transition period which comes to an end on December 31. This means that if both parties fail to agree on a trade deal, future trade between the UK and the EU will take place on the terms provided by the World Trade Organisation (WTO).


Notice on accounts closure worries UK expats

British expats living in the EU have been informed by their banks that their accounts might soon be closed on the back of Brexit coming into effect next year. The Financial Conduct Authority (FCA) offered relief to those expats stressing on the fact that banks must give at least two months’ notice to its customers prior to closing accounts. The authorities wrote to chief executives of top UK and international banks pointing out that customers should be treated fairly and be given sufficient notice to make alternative arrangements—if they are planning to close accounts or end some of their services to their customers. So why are these accounts being closed? This reason is when Brexit becomes official, UK banks will no longer be allowed to operate in Europe without a proper banking licence. So far, UK banks were allowed to operate in the EU due to passporting—a system which allows banks in the EU to provide services to customers in the European Economic Area (EEA) without acquiring an additional licence. This is likely to change from next year.


From December 31, the UK is set to become a third country and UK banks will lose access to all passporting privileges that they had previously enjoyed. The British Bankers Association (BBA) said in a statement that these passports are the foundation of the EU single market for financial services. They pointed out that without an agreement with the EU, UK banks will find it very difficult to continue to provide cross-border banking and investment services to its customers in the EU. BBA further said in its report that UK banks could look to the national licencing regimes of individual EEA states as an alternative. However, the association stressed that relying on the domestic legal position of individual EU countries instead of the pan-EU passport regime is a costly affair and it is not very feasible for most banks. Even if a bank manages to acquire a licence to establish an official branch within an EU country state, the licence would be applicable only for that particular country. It means banks would have to apply for licences individually in all EU countries which is a hefty process. So far, no bank has been contemplating such a process.


Which banks are likely to close accounts? 

Currently, there are an estimated 1.3 million Brits living in the EU. Big banks like Barclays, Lloyds and the private bank Coutts have informed their customers living in Germany, France and Portugal that their accounts with these banks will be closed if they fail to provide an alternative UK address. The accounts will be officially closed when the passporting rules expire on December 31. Some expats might find relief in the fact that not all UK-based banks have decided to close the accounts of Brits living in the EU member countries.


Following that, some banks announced that they have not taken any decision in this regard. But they are closely monitoring the situation and a decision could be made based on whether or not a withdrawal deal is reached. Banks such as HSBC, NatWest and Santander are among those who are monitoring the state of the negotiations. UK-based challenger banks that have expanded into the EU will not be affected since they will already have a licence to operate in the EU. London-based fintech Revolut is one of those challenger banks that will not be affected by Brexit as it already has a licence to operate both in the UK and the EU. From January 1, Revolut’s unit in the European Union will still be able to service those expats who live in the EU and have an account with the challenger bank. 


Last month, the British media said that Barclaycard credit card customers living in the EU member countries such as Belgium, France and Spain would have their accounts closed. On the contrary, the bank has not confirmed which specific accounts will be closed—whether it is going to be only those customers whose Barclaycard was not linked to a UK address, or even those who fail to provide a UK address prior to the stipulated deadline of November 6. Some 13,000 customers of Lloyds Banking Group, including stablemates Halifax and Bank of Scotland, will have their accounts closed on or before December 31. This even includes retail customers in the Netherlands and Slovakia, and business banking customers in Germany, Italy, Ireland, the Netherlands and Portugal. Lloyd said in a statement that it has written to a small number of customers living in the EU to let them know about the account closure due to Brexit.


Many expats will wonder if there is an alternative solution and whether they could continue to use banking services without linking their accounts to a UK address. Unfortunately, there are no straightforward alternatives to having an expat bank account. They could find out if an alternate UK bank will continue to operate post-Brexit in the country that they are currently residing in, or move their accounts to a challenger bank such Revolut which can operate in the EU even after the transition period. Each country’s banking regulations affect providers in different ways—for example, where one may not be able to serve a country, others may be able to continue offering banking services. Expats can also move their accounts to a local bank in the country they are currently residing in. If expats have citizenship in any other EU country, they are entitled to open a basic bank account. That said, there are also complications if they opt for these alternative solutions. The drawbacks here are possibly needing a visa or work permit to open the account, and if they continue to earn income in the UK, it will only add to the existing complications.


Regulators urge banks to prepare ahead of time

The Financial Conduct Authority (FCA) and the Bank of England Prudential Regulation Authority (PRA) have urged banks to prepare for the end of the Brexit transition period. The authorities stressed the importance of the preparatory work that needs to be carried out ahead of Brexit. According to them, it will allow the banks to prepare for a wide range of scenarios that might occur when the transition period finally comes to an end. The regulators are ensuring that proper measures have been put in place for businesses and individuals in the UK to continue to access services from EU financial institutions after 2020. In addition, they have warned that there remains a risk of market volatility and disruption to financial services, particularly for EU customers. 


The regulators have laid out several areas where firms should take action, although they did not specify the order of priority for those actions. According to them, financial institutions need to ensure the continuity of wholesale banking and contracts. Another important factor pointed out by the authorities is to complete the migration of new or existing businesses to EU entities. Firms need to consider the impact of this on each customer and ensure that they would be able to comply with national licencing regimes and exemptions in EU member countries by the end of the year.  Besides stating that customers who will face account closures should be given sufficient time to allow them to find alternative arrangements, the regulators have also highlighted the need to ensure  that the institutions can continue servicing retail customers in the EU, in accordance with the law. 


The FCA also reminded the financial institutions that they should consider updating relevant contracts to comply with EU requirements or consider other measures for transferring personal data from the EEA into the UK. In  a letter, the authorities revealed that the UK would retain access to Single European Payment Area schemes after the transition period, and also that institutions should avoid disruption to payments. Processing payments post-Brexit will require additional information about the debtor in the payment instructions. The letters from the regulators have not covered all issues that could arise during the end of the transition period. The ECB also reassessed banks’ preparedness for the end of the transition period. Supervisory teams formed by the ECB have discussed the progress made in this regard. They established dialogues well in advance of Brexit as it is highly important for the banks to focus on plugging the gaps and preparing for an unpleasant outcome. 


The pandemic is a scare to the transition period 

When both parties agreed to a transition period, they did not take into account the problems triggered by the coronavirus pandemic. Talks between the UK and the EU were called off in between when representatives from both sides tested positive for the virus. Also, many scheduled meetings were cancelled as traveling was restricted in many European countries. In response to the crisis,  the ECB has identified three priority areas. 


First: It points to contingency planning, where the ECB seeks to ensure that banks are prepared for complications such as distress in funding and trading markets in a post-Brexit setting. Second: Banks must strengthen their risk management and governance arrangements to safely manage their business in the UK and the EU following the end of the transition period. Thirdly: The ECB expects banks to retain full local oversight of the business they establish and manage and asset relocation should only take place once onshore risk management capabilities are in place. Staff relocation processes can be delayed on the back of several lockdown measures and partial travel restrictions.  In the last few months, the main priority for banks has been to deal with the coronavirus pandemic, a major stressor for economies and financial institutions. The UK has come in support of the banks in this regard through monetary policy and supervisory action to soften the impact of the pandemic on the financial sector. Authorities have also asked banks to use their capital buffers to provide loans to struggling businesses in the country.

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