the uk and the eu27 will be after brexit. against this background, it was positive that in december of last year the eu27 and the uk reached broad agreement on the three fundamental divorce issues. 2 after this preliminary settlement, we can now talk about the future model of cooperation and integration. this has improved the chances of reaching a reasonable settlement before the march 2019 deadline. the plan is to have a political declaration on what the future partnership will look like by october this year ; at the same time negotiation parties should have a draft withdrawal treaty ready. but we should make no mistake : in light of the fact that the goals of the uk government are yet 1 / 5 bis central bankers'speeches unclear to me and in light of the not fully unified positions within whitehall, such an agreement is anything but a sure thing. first of all, we have to keep in mind that substantial progress has yet to be made on the details of the three separation issues i have just mentioned. second, a sufficient transition period is not assured at the moment, either. and finally, even the no deal scenario remains possible in light of the fundamental differences between the negotiation blocs. so what are the implications? what they have been since the beginning : the private sector and authorities have to prepare for a no deal scenario starting march 2019. i will come back to what this means for the financial sector. but, let ’ s remain at once realistic and optimistic. there is still at least a 50 percent chance of avoiding a “ no deal ” scenario. so let ’ s think about what this would mean for financial services. would they be part of an overall deal? and if yes, what would that deal look like? like with the overall negotiation, for financial services we have also seen a steady decline in expectations of how deep the integration will be after brexit. it quickly fell from remaining part of the single market and passporting to the approach of equivalence in supervisory regimes, on the basis of which access could have been granted. the next step down the stairway of expectations was mutual recognition, at least in selected areas – or alignment and mutual recognition, as uk finance has proposed. 3 yet i am sceptical as to whether such a mutual recognition framework is actually possible. moreover, a future agreement may very well be quite limited – for example, to the exchange of goods. labour migration is likely to be excluded ; at least, this has been mentioned as a red line for the uk government. and

reach a consensus on a detailed legal text by march, this would still only be a preliminary part of the greater deal. both sides would still have to reach an overall divorce deal, roughly by october of this year. if this endeavour fails or if parliaments don ’ t subsequently ratify the deal, the transition period would be off the table, too. put bluntly : a deal on the transition phase hinges on an agreement on the overall future relationship – if the uk and the eu can reach a deal on the end state of the future partnership, i am confident it will be easier to find a suitable solution for the transition phase. the point is : even if one is cautiously optimistic that a transition phase can be agreed upon – which i continue to be – it still wouldn ’ t give businesses the certainty they crave. just this 3 / 5 bis central bankers'speeches monday, mario draghi has underlined in the european parliament that political uncertainty will remain for quite some time to come. the transition phase is not a safety net. 5. acknowledging realities : timely preparation is key this is why i see no alternative to timely preparation. this holds for all businesses affected, and it holds for the financial sector in particular. financial institutions should not fall prey to a false sense of certainty that, come what may, there will be an agreement and that they will have sufficient time left to adapt to the new framework. the economic consequences of insufficient preparation in the event of a hard brexit would far exceed the costs of proper preparation. looking at banks, proper preparation includes establishing at least basic entities in the other economic area – that is, the eu27 or the uk – in order to continue doing business there. the concept of a “ basic entity ” is not easy to define. from our side, i can repeat that we will certainly not accept empty shells or “ letterbox companies ” where the business effectively continues to be run from london. for critical functions such as management, controlling and compliance, qualified personnel need to be present at the eu entity at all times. we expect any branch or subsidiary to retain chief responsibility for its business. that is our general approach. when it comes to the details, things get much more complicated very quickly – as has been demonstrated by our experience with the applications of banks for licenses in the context of brexit. it is not enough to make a decision about what business to move and to submit a ten - page application for a banking license to the supervisor.