pwc france€¦ · european activities post-brexit, others have chosen to relocate in several...

Consulting

PwC France

Adapting to a post-Brexit market

Strictly Private and Confidential

June 2018

PwC

Context and timeline

2

Since the ratification of Article 50, the withdrawal process has begun,

with a supposedly fixed timeline ending on March 29th 2019.

Latest political agreement on a transition period ending on

December 31st 2020 could let us foresee additional time to prepare for

Brexit. However, with no agreement ratified, Banking

Institutions are prompted to prepare for a hard Brexit

scenario.

As negotiations are moving forward, numerous uncertainties

remain and, with a shortening timeline, it has become urgent for

Financial Institutions to carry on with their Brexit programs.

From strategy to execution, each step is key for Banks to efficiently

prepare for this structural change.


June 2018

May 2018

October 2018

Brexit plans are being defined as GDPR is entering into force

European Council Summit

European Council Summit – Ratification

process expected to begin

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

Preparing for Brexit: announced relocations

3

FrankfurtDublin

Paris

Benelux

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.


PwC

Mastering your Brexit Program

4

No analysis to date Preferred location confirmed

No regulatory approval application initiated

Regular regulators engagement and approvals

application initiated

No plan and no budgetExecution in progress

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

Regulatory approvals

application

Execution

Identification of potential location options with detailed impact analysis

on Brexit scenarios

Comprehensive list of required regulatory approvals identified. Team

mobilised and application will be initiated once location decision taken

Detailed plan documented and some initial activities initiated, including

client and products analysis and balance sheet impact

Identification of potential location options and limited impact analysis on

Brexit scenario

High level view of required regulatory approvals from BAU teams. No team mobilised and no application initiated

High level plan document but no dedicated implementation activities

initiated

Actions already undertaken by banks

Remaining challenges to be completed before Brexit

Target situation

First topics to be addressed in a short-term period

Design the way in which the bank will

do business after Brexit (locations,

processes/activities, people, …)

Design an appropriate structure of

subsidiaries and branches based on the target location model

Undertake the legal and administrative activities required to

set up new legal entities and implement the new

legal entity structure

Identify regulatory approvals required, submit applications for

approvals and additional information requested, and manage process to completion

Design how transactions are

allocated to trading books and legal

entities, and how risk is managed.

Identify staff affected by planned

relocation, manage compliance with

immigration rules, and manage relocation

logistics

Develop a Programme of

activities, undertake programme

management


PwC

Brexit program: a 3-step way towards readiness

5

Step 1 Strategy

Step 2Regulatory approvals application

Step 3 Execution

Set up your Brexit strategy

• Banks should ensure that plans for post-Brexit arrangements are consistent with the ECB’s expectations.

• The ECB confirmed that it will not allow banks to operate with a minimal ‘brass plate’ presence in the euro area. The ECB expects banks to have significant risk governance capability locally, and to manage all material risks at the local level. The ECB will also expect euro area banks to be operationally independent and not overly reliant on outsourcing functions or services.

Apply for regulatory approval

• A pre-requisite before implementing your Brexit strategy: As your strategy may imply a legal re-structuring, a phase of regulatory approval will be necessary

• New licences take time: obtaining a new banking license, whether in the UK or EU, is a time consuming and intensive process, typically taking at least 12-18 months.

• Appropriate resource will need to be dedicated to the process: firms are generally not experienced in what local regulators expect from such applications

Implement changes

• Where required by changes in legal entity structure, regulatory expectations on the location of sales and trading activities, banks will have to consider moving sales and trading activities in a legal and tax efficient manner and making associated changes to processes, technology, and people.

• Setting a strategy for Brexit is also an opportunity to rethink your organisation, and improve the way you do business

• Design and implement the new Operating model derived from your Brexit strategy

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How can we help for this step ?

• scenario preparation and analysis• Impact assessment...


• assistance to RBP preparation,• advisory services related to

regulatory communication


• Programme management, • client outreach preparation,• contract assessment...

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PwC

Set up your strategy

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Step3: Execution

Typical timeline & milestones

Migration Strategy analysis(2 months)

Feasibility analysis(1 month)

What you need to know

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• Set up project governance

Migration strategy analysis• 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

Challenges and key issues to

be considered

Step 2: Regulatory approvals application

Step 1: Strategy

Potential adverse tax consequences on migration: The transfer of assets from the UK for gains arising on the transfer of assets (e.g. goodwill, IP, customer lists, IT systems) could result in a host of “exit charges” including capital gains, VAT and the extinguishing of tax assets ; The step plan to migrate to a new structure should include steps to minimise all these adverse tax impacts on migration. Jurisdictional review: Firms will need to consider the tax regime in each relevant jurisdiction when considering their structure, as well as tax rates and reliefs.

Consider alternatives: In considering contingency planning, firms will need to consider alternative entity structures which may be required post April 2019 to ensure continuity of business. The challenges and solutions will differ dependent on the firms’ business model and legal structure (EEA incoming branch, UK legal entity, …) : will I need to create a new UK subsidiary ? Will I need to authorize a new/existing EU entity ?

Engage early: When contemplating a relocation it is important to engage with potential National Competent Authorities (NCA) early in the process to understand their requirements and clarify expectations around areas such as booking models, outsourcing, internal model approval, grandfathering and length/scope of any transitional arrangements.Understand the ECB’s position : While NCAs supervise the conduct of investment firms and other credit institutions, all credit institutions need to be authorised by the ECB. The ECB has made clear that it will not tolerate shell companies or permanent back to back booking to London.

Structural concerns Tax considerationsAuthorisation and Supervisory requirements

Framing document for strategy implementation produced


PwC

Apply for regulatory approvals : the case of ACPR

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Assessment by regulators(6 to 12 months)

Pre application phase(3 to 6 months)

Application submitted to ECB via ACPR

Preliminary meeting with ACPR Obtain approval from ECB

Components of the French

license application

Shareholding structure

Governance and organisation

Business plan and forecasted prudential ratios

Staffing and technical resourcesincluding IT inventories

Internal control, risk management and compliance

Contractual framework (agreements to be entered into with clients and outsourcing arrangement / SLAs)

During pre-application phase: project memo and step plan to be presented at ACPR preliminary meeting

As part of the application file (appendices) Articles of associations Group chart Last three balance sheets and certified operating accounts, etc. Draft agreements to be entered into with clients Draft outsourcing arrangements / SLAs, Declaration/information to be submitted by capital contributors Declaration/information to be submitted by approved persons As the case may be, key internal policies (e.g. AML / risk mapping)

Typically around 100 / 150 pages

Additional documents required by the regulatory authoritiesComponents of the French license application

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) Outsourcing • Minimum staff and resources requirements to be met from a French regulatory perspective, especially for deposit taking institutions• 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)


be considered

Step3: Execution

Step 2: Regulatory approvals application

Step 1:Strategy


PwC

Execute the appropriate changes in the operating model

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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)

Changes in legal entity structure, regulatory expectations on the location May require to move sales and trading activities and make associated changes to processes,

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

Potential events and

related impacts

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 Expand finance, governance and group processes in target/existing jurisdictions Migrating customer contracts 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


be considered

Implementation(6 to 12 months)

Implementation enablement(3 to 6 months)

Step 3:Execution

Step 2:Regulatory approvals application

Step 1:Strategy

Go live for the post-Brexit operating model

Kick-off of the transformation project

Onboarding of all relevant stakeholders


PwC

How 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.

Human factors of Brexit

We perform culture reviews which focus on behavioural reinforcers to help manage the impact of Brexit uncertainty on staff morale,

their behaviours, and the firm’s values resulting from strategy or organisation change.

We can assist you in undertaking strategic workforce planning that maps out key activities

and determines the resource requirements to meet business objectives. Including running cost-

effective global mobility programmes, and ensuring cultural alignment and integration.

Restructuring and Regulations

A single team across Europe comprising of strategy, tax, regulationand legal specialists will advise on the legal feasibility andimplementation of a proposed European restructure,and regulatory capital and liquidity implications, takinginto account local legislative and regulatory nuancesin the implementation of new business models.

Large transformation programmes

We have extensive experience running large scaletransformation programs, cutting across multiplelocations, topics and stakeholders, ensuring that theprogram and its stakeholders maintain the pace andintensity that is needed for success, andcommunicate this effectively to the Board and senior stakeholders.

Our approach to transformation considers all aspects of transformation:from vision and strategy through to governance, data, processesand communication, including PMO specialist support.

Brexit programme assurance

We can support firms to establish a robustprogramme governance and oversightstructure to report to the Board and seniorstakeholders.

Additionally, we can provide comfort that their Brexit programmes aredesigned to deliver the right outcomes, through high-level reviews ofthe key principals expected or deep dive views, which can be used toprovide the ‘path to green’ recovery plans for any issuesidentified.

We rely on our Centre of Excellence and ournetwork of experts based both in Paris andLondon who are closely connected withFrench/UK regulators in relation to Brexittopics, and understand ECB Brexit expectations.

9Adapting to a post-Brexit market

PwC

Our areas of influence

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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 France works with Montaigne institute, one of the most influential think tank in France. PwC has been associated to the work of the Think Tank and has participated to a working group on “the Europe of tomorrow”. Study : The Europe we need

PwC works with Paris Europlacesince 2016

PwC is associated to the Think Tank through working groups meetings on different subjects to enhance the competitiveness and attractiveness of the Paris financial center

PwC France is a member of the Franco-British Chamber of Commerce & Industry

PwC France has written 2 articles for Revue Banque, one of the reference magazine for the financial sector

Brexit pour les banques : une transformation sectorielle d’ampleur? (06/2017)Brexit: A new shape for Banks in Europe? (11/2017)

PwC works with the European Central Bank

Thanks to our work with the European Central Bank, PwC can be a key discussion partner and liaise with the institution for our clients.

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

Industries

Chamber of commerce

Media

Regulatory institutions


PwC

Citation name Brexit strategyReg.

authorizationfiling

Reg. gap analysis

TargetOperating

Model

1. Implementing the optimal new booking model

2. Brexit impact analysis

3. ACPR authorization process #1

4. ACPR authorization process #2

5.Implementing Governance, Finance, Risk & Compliance frameworks in accordance with French regulatory requirements

6. Brexit PRA authorisation: booking model

7.Restructuring of two sister asset management companies in France

8. European Bank – Regulatory gap analysis

PwC 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.


PwC

Focus on an assignment regarding license application process for a non-European Bank

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Assess and support Brexit plans and organizational changes for the client

Client challengeThe 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.

Scope of our assignmentMid-September, Paris entity has launched a “Brexit” transversal project across the company to design and deliver the necessary changes to adapt to the post-Brexit environment, in line 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 Paris entity’s banking license; we’ll provide support and advisory throughout the application process

• Program Management: support in overall program initiation, planning and execution• Regulatory Intelligence: provide regulatory alerts and share insights from our Brexit-

related discussions with public and private stakeholders

Paris entity will remain the branch of London entity but becomes the "branch of a third country bank"

Paris entity needs to obtain a new ACPR license by the end of December 2018 and to undertake appropriate actions to continue its business

Paris entityBranch of the London hub

Europe entityLondon-based

Paris entityBranch of a third

country bank

Europe entityLondon-based

X-LOS

ConsultingFinancial Services

Tax & Legal Services Regulatory

Center Of Excellence

Bid Team


PwC

Focus on an assignment regarding license application process for a non-European Bank


- 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

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.

ECBEuropean banking regulator

PRAUK regulator

EntityLondon branch

Regulatory Business Plan to be submitted to the PRA 6 booking models principles

16 booking models expectations

The application must include

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 submission which entailed: - Document booking model practices and control environment,

including monitoring and governance- Highlight major gaps with PRA and ECB principles/expectations- Review and recommend on communication towards both

Regulators

Our solution and approach

In order to provide these, PwC: - Met numerous stakeholders in multiple functions in order to assess as-is

vs. expectations- Assessed major impact per function and define communication strategy- Supported documentation of detailed considerations and assumptions

needed to take into account when describing their booking model environmentPwC lessons learnt

PwC

Your contacts

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Nicolas Mordaunt-Crook Partner

Office: + 33 1 56 57 42 40 Mobile: + 33 6 43 31 82 [email protected]

Ericson OpouDirector

Office: + 33 1 56 57 58 78Mobile: + 33 6 30 49 11 [email protected]

Timothée HuignardSenior Manager


Roles and responsibilities

As a French qualified lawyer, Nicolas has assisted credit institutions, investment firms, asset managers and insurance companies or intermediaries in connection with the structuring and operation of their business.

He has extensive knowledge of laws and regulations that apply to different types of banking and financial activities in France, as well as of the procedures for obtaining relevant permissions or licences.

Nicolas is currently leading PwC France’s Tax & Legal Services Brexit taskforce.


Ericson has over 12 years of experience focused on the execution of critical and strategic initiatives for blue chip organisations in the Financial Services industry.

He has led a wide range of complex end-to-end engagements such as target operating model design/deployment, business transformation, large core system implementation, and offshoring/outsourcing programs.

Ericson is currently leading PwC France’s Financial Services Brexit taskforce.


Timothée has over 9 years experience in banking and capital markets. He has recently moved back from the London office where he worked extensively on Capital Markets engagements. He developed a deep understanding of the front-to-back processes and organisation.

He has conducted a number of international programs focusing on target operating and booking model redesign, business migration and finance transformation, notably in the context of Brexit.

Timothée is currently co-leading PwC France’s Financial Services Brexit taskforce.


Jimmy ZouPartnerBrexit Financial Services Leader for France



Jimmy has over 20 years of experience focused on strategic and management consulting for financial services institutions in France and Europe.

He is the Brexit Financial Services Leader for France and is a member our Brexit European Task force.

He represents PwC in various “Think tanks” such as Institut Montaigne or Paris Europlace.

Jimmy is also the partner in charge of our Insurance activities in France.

mailto:[email protected]

pwc france€¦ · european activities post-brexit, others have chosen to relocate in several...

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