It could take European Union banks up to five years to overhaul their operations and acclimatise to a new post-Brexit trading landscape, according to a new report commissioned by the Association for Financial Markets Europe (AFME).
While yet to be fully released, the report, conducted by PwC, features interviews from 15 AFME members, some of the world's largest investment banks, and is thought to be the most in-depth analysis of the future of the EU banking industry since the U.K.'s shock Brexit vote.
It suggests that it could take banks up to three years or more to transition to a new business environment. This is on top of the two-year negotiation period scheduled once the U.K. triggers Article 50 and formalises its intent to leave the EU.
The report garners feedback from banks spanning a range of sizes and activities and covers an even split of EU27 headquartered, UK headquartered and non-EU headquartered banks.
According to the report, firms providing a significant proportion of current industry capacity will need to execute transformation programmes which will "extend beyond Article 50 timescales and in many cases up to three years after Brexit has been completed; or even longer if the post‐Brexit trading relationship between the EU and UK remains unresolved for a protracted period."
Banks are currently proceeding with two-year tactical plans to maintain continuity of service, according to the feedback.
However, these plans are likely to be "sub-optimal for clients and market effectiveness" and will depend heavily on reaching an agreement between the UK and EU27 about an interim business model, the report says.
The report calls on policymakers to clarify such models with industry participants as soon as possible to ensure they can operate immediately post-Brexit.
It also proposes plans for an implementation period of "at least three years" once the U.K. has exited the EU to enable banks to complete their adaptation and any outstanding "'grandfather' transactions" that are in force at the time.
The full report, entitled 'Planning for Brexit – Operational impacts on wholesale banking and capital markets in Europe', will be realised in full once it has been shared with policymakers, the AFME said.