Following the Brexit vote, a great deal of uncertainty surfaced regarding the direction of European banks and their preferred destinations as they prepare to exit the UK.
The immediate beneficiaries were Europe’s other major economic hubs, including Frankfurt, Paris, Dublin, Luxembourg and Amsterdam. While the national regulatory bodies of each country have seemingly attempted to attract banks to their jurisdictions with various indications of their respective advantages, Germany’s regulator BaFin has abstained from making such commitments. In the end, it appears that this decision is working in their favor.
Germany is the eurozone’s largest economy, and Frankfurt is at the center, making it a natural landing spot for many banks and businesses searching for their post-Brexit destination. Felix Hufeld, BaFin’s President since 2013, has acknowledged the lack of an aggressive sales pitch on behalf of the German watchdog: “We are not a marketing agency and not interested in doing industrial policy.”
However, he appears to properly comprehend the practical approach that is necessary to successfully achieve such a dramatic change in venue and policy: “We try to be as flexible and as pragmatic as legally possible and are willing to find bespoke solutions to make the transition easier.”
Frankfurt Takes Center Stage
Due to the stable German economy, the country has successfully drawn some of the largest banks to designate Frankfurt as their choice for the upcoming Brexit move. As it stands, of the fifteen UK-based lenders that are forced to relocate in order to continue their European operations, seven have already declared Frankfurt as their selection, including Goldman Sachs, Morgan Stanley, and Citi.
The aftermath of Brexit leaves regulators the highly daunting task of appropriately and carefully mitigating risks and assuring the sustainability of such a large-scale move. Perhaps the relative trust that US and foreign banks are placing in Germany’s economic spectrum can be attributed to the vigilant approach of BaFin to the sensitivity of the ordeal. For instance, Mr. Hufeld has insisted that on each lender having a “proper risk management function in Frankfurt,” in order to assure regulatory over “underlying assets,” in the event of a financial crisis.
In addition to Brexit-related bureaucracy, BaFin is currently tasked with addressing the rising global demand for cryptocurrency assets. In November of last year, the regulator issued a stern warning, alerting the public of the potential risks associated with investments in ICOs. BaFin joins several other global regulators in their agenda to protect investors from fraudulent activity in the cryptocurrency field as well as the overall financial industry.