joachim wuermeling : brexit means brexit - but what does it mean for europe as a financial centre? speech by prof joachim wuermeling, member of the executive board of the deutsche bundesbank, at the annual reception of the association of foreign banks in germany, frankfurt am main, 20 june 2018. * * * 1 introduction ladies and gentlemen it gives me great pleasure to be able to speak to you today about the future of europe as a financial centre after brexit. there are three aspects which i would particularly like to address. the first of these is that banks looking to relocate their business to the eu or expand their presence here after brexit will be asked to satisfy the same minimum prudential standards that foreign banks already operating within the union and domestic institutions are expected to comply with. at the same time, we will need to find solutions that prevent any unnecessary additional expense. my second point is that in future, institutions that conduct cross - border business will be heavily dependent on how the respective supervisors oversee third - country institutions – as they will then be – and how the authorities involved will cooperate internationally. and third, when considering brexit, we tend to dwell on the negative side of things and think about how best to cushion the impact. as important and justified as these considerations are, we nonetheless need to continue to press ahead with our vision of a harmonised financial market in the eu – a digital financial centre of europe which offers as yet untapped potential. 2 leaving the single market means separate supervisory regimes two years on from the brexit vote, we can only assume that cross - border economic relationships look set to face noticeable headwinds going forward. for the financial markets, this means one thing : the financial services passport is dead. this immediately raises the question : could it be feasible to have something like a diet version of the financial services passport, or to perhaps create a range of exceptions? the clear answer to this is that there cannot be, nor will there be, any permanent exceptions. institutions that relocate operations to the eu or expand their presence here following brexit will have to comply with the same high supervisory standards that apply to the institutions that already operate here. this answer is underpinned by the fundamental belief that supervisors must be capable of intervening in the business activities of institutions operating within their own jurisdiction at all times. this is a sine qua non, and it should not be up for grabs.

’ s why i would strongly urge all institutions to make the necessary preparations to keep their business operations running even if there is a hard brexit on 29 march 2019. institutions that submit an application after the end of the current quarter will find that the likelihood of their licensing procedure being concluded in time will diminish considerably. we also expect these applications to satisfy our supervisory policy stances. let us take a brief look at the key aspects. first, there are the principles for authorisation and for governance, risk management and outsourcing. in essence, the several hundred pages of requirements boil down to this : “ empty shells ” will not be permitted. banks in the euro area must be able to manage all their material risks independently and locally. to achieve this, they need to have control over their books and all their positions, and have locally independent governance and control functions that report to the local board of management – particularly in the areas of risk management, compliance and internal audit. that brings us to the question of booking models. will back - to - back hedging still be accepted? here, the ssm expects banks in the euro area to have sufficient local capacity to manage at least an evident portion of their euro - denominated business themselves and not to fully outsource it to other entities within the group. the local entities have to be established in the local market, to ensure that, in the event that other group entities fail, they can participate in the market autonomously. however, we at the bundesbank naturally see the economic advantages of back - to - back hedging. to some extent, transactions such as these serve as a pipeline to international capital resources at other locations. some parties are hoping for an overarching supervisory or legal solution to the issue of the continuity of financial contracts. in response, i warn against relying on us for this, as it is not so much a supervisory issue as a civil law problem. one very important issue – and not just for foreign banks – is the supervision of future thirdcountry ccps from the uk. in the bundesbank ’ s view, there have to be clear rules and 2 / 5 bis central bankers'speeches safeguards here ensuring that continental european authorities have both sufficient rights to obtain information and robust powers of intervention in respect of uk ccps – otherwise, it seems a relocation to the eu would be all but unavoidable. the more we look at the whole issue, the