Europe is closing a trading loophole that banks were relying to cope with Brexit – Finance

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  • The European Central Bank reportedly wants to crack down on a practice known as back-to-back after Brexit.
  • This process effectively sees banks and other institutions doing business in one market, but ordering this activity in another.
  • Many in the city believed that the continued use of back-to-back reservations would help London retain its European financial crown after Brexit.

The European Central Bank reportedly wants to crack down on a practice that many consider in the city, which would help London to maintain its European financial crown after Brexit.

The ECB wrote large financial institutions to urge them to reduce their dependence on the use of so-called “back-to-back” booking deals and loans, says the Financial Times report on Monday.

This process effectively sees banks and other institutions doing business in one market, but ordering this activity in another. For example, a bank could make a deal in Paris, but make a deal in London.

Many financial institutions are reportedly planning to use reserve backups as a means of continuing to centralize many of their European events in London, even after the UK loses its financial rights to a “passport” during Brexit.

However, the ECB seems to be pouring cold water on these plans. The FT report states that the ECB will provide financial institutions by 2022 "limit their dependence "on the use of this practice.

This tough position on one-by-one deals from the ECB, which is now the main arbiter of European banking rules, seems to contradict the words of Andrea Enria, head of the European banking department.

ATanks "can use“ one-back ”transactions or intragroup transactions to transfer part of the risk to a non-EU-EEA entity”, Enria said in an interview with FT in September, adding that during the reverse reservation there will be a “ban”.

A clear obstacle for the ECB with respect to reverse backups can be bad news for large financial institutions that planned to use this system as a means of preserving large business units in the EU from the UK after Brexit and could increase the number of state banks to move from London.

After early predictions of top losses of tens of thousands for the city, most financial institutions abandoned such forecasts, and major lenders now expect to move only hundreds of employees to other European financial centers – including Dublin, Frankfurt and Paris – by one day at brexite.

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