* Banks must set up real operations, not 'letterboxes' in EU
* Buba official warns against trying to circumvent rules
* No evidence of national regulators offering 'discounts'
(Recasts with more comments)
By Marc Jones and Huw Jones
LONDON, Feb 24 UK-based banks that want to
operate across the European Union after Brexit must set up
genuine operations, not 'empty shells' in EU countries, a
Bundesbank official said on Friday.
Andreas Dombret, the Bundesbank board member responsible for
supervision, warned banks not to try to trick regulators as they
seek ways of preserving their access to the EU after Britain
leaves in two years' time.
"We will not accept any empty shells or 'letterbox
companies' where the business effectively continues to be done
out of London," he said at a London conference organised by zeb,
a financial services consultancy.
"I urge banks not to spend their time inventing strategies
to circumvent these requirements," Dombret said. "This includes
seemingly creative solutions such as 'fly-and-drive' banking,
where bankers fly in daily from London, or 'dual hatting', where
transactions are booked on the EU subsidiary but in fact
executed in London."
Under EU rules, banks licenced in one member state have
'passporting' rights to offer services across the entire bloc,
but the chances of UK-based lenders retaining this access
without shifting some operations from London are "dim", the
German central banker said.
They should not put great hope into the "equivalence" regime
- agreeing to apply rules that are as strict as those in the EU
- or a free trade agreement, he said. Even a transition period
between Britain and the EU would be difficult to negotiate.
"For the financial industry, this means that the current
model of using London as a gateway to Europe is likely to end."
Dombret said banks in London would be deciding in the first
half of this year whether to relocate some activities.
"I expect London to remain an eminent global financial
centre," he added. "Nevertheless, I also expect a number
of UK-based market participants to move at least some business
units in order to hedge against all possible outcomes of the
Financial firms are the biggest tax contributor of any
sector to UK government coffers. UBS and HSBC
have said they could each move about 1,000 jobs out of London
Dombret said he had personally seen no evidence of
regulators across Europe trying to undercut each other by
offering "discounts" or incentives to banks to relocate
operations from London to their country.
"There are market participants talking about this, I don't
have any direct evidence... What I want is the same high
standards everywhere. We should simply exclude it as a
possibility," he told reporters.
"We will not give any discounts to anybody," he said, adding
that nobody had asked for any.
Britain is set to formally trigger divorce talks with the EU
next month, and UK policymakers say the EU should work with
Britain to avoid undermining financial stability.
But Dombret said banks will be able to adapt to whatever the
new trading terms are, and therefore there won't be any
"pressing" risk to financial stability.
(Reporting by Marc Jones and Huw Jones; Writing by Balazs
Koranyi; Editing by Mark Trevelyan)