Snowdon J’s judgment on Wednesday approved most of Barclays’ application to transfer (much of) its EU27-facing business to Barclays Bank Ireland, refusing it only in relation to some aspects of the business of Barclays Capital Securities Limited which were stand-alone and not interwoven with deposit-taker Barclays Bank PLC. It covers contracts under the laws of England, Germany, France, Spain and Italy because those countries apparently recognise the effectiveness of a Part VII transfer, but not contracts governed by the laws of NY, Holland and Portugal because, presumably, they don’t. The advantage of Part VII is that there is no need to manually negotiate and sign a huge number of novation agreements. Since FSMA section 106(1)(a) requires a deposit-taking business to be part of the transfer, the Part VII route is not open to many.
As readers know, NatWest and UBS are engaged in similar processes. Part VII is of course an inroad into freedom of contract, and what about the credit risk on the substituted entity? The Judge declared he was satisfied: “BBI is a financially robust institution. It is also one which is central to the financial health and reputation of BBPLC and the Barclays Group as a whole. The evidence therefore suggests that BBI is likely to be supported by BBPLC and the Barclays Group unless BBPLC or the Group was itself in financial difficulty. The insolvency of BBI is therefore a remote risk and there is, in reality, no material difference in the position of transferring Clients as regards the solvency of their counterparty”.
It has been reported that despite the aggregate amount of assets to be transferred, it will result in BBI doubling its workforce from 150 to 300 employees, mainly local recruits. Readers will remember that the ECB issued warnings as far back as 15th November 2017 and 2nd October 2017 that EU27 regulators must avoid the (inevitably-named) “regulatory race to the bottom” if UK firms apply on the basis of a minimal presence and back-to-back operations into the UK. At the time these looked like a shot across the bows of EU27 countries tempted to attract UK firms needing a post-Brexit EU27 presence, and the ECB was clear that they would “need to have substance locally… there cannot be empty shells or letter box banks”. BBI’s 300 employees should comfortably pass the ECB test.
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