Corporates question cash-pooling capabilities after Brexit

For international companies, retaining an overview of their cash requires holding and moving it across an intricate web of laws and regulations that allows the free-flow of funds and data across currencies and borders. 

The UK has been an attractive place to run cash pools due to the ability to process a high number of different currencies, but the final outcome of the Brexit negotiations might change all that.

Diane Reyes, global head of liquidity and cash management at HSBC, says it is up to the banks to work out solutions to potential issues, adding: “While it remains uncertain what will happen around Brexit, we need to be setting up facilities so our clients can continue with business as usual. 

"They need clearing systems and cash-management facilities. The services need to be fit for purpose regardless of what happens.”

The ability to continue running cash pools as normal as part of their international cash-management structure is of primary concern for many companies. Having set up operations to pool their various currencies into one place, they now need to be sure they can continue doing this easily, or risk needing to overhaul how they manage their international funds.

Reyes says some are making the first tentative steps towards trying out other options.

“Clients are looking into how they can pool currencies out of the UK," she says. "They do not want to move all operations, but want to get a start in Europe so are running two pools. 

"They want to be sure that they can continue to run all of their exotic currencies out of other countries. They are testing this out with smaller volumes on accounts first.”

It is not just the potential regulatory changes off the back of Brexit that might have an impact. Depending on the structure of the bank, corporates could face challenges on whether they can continue to move funds, depending on the passporting capabilities of the bank they use.

Gavin Mclean, head of cash management and payments at Lloyds Banking Group, says it is the job of the banks to create options that will mitigate potential risk.

“Banks need to step up now and provide support to their clients on how they can continue to operate and transact their payments flows," he says. "It is a concerning time for corporates, and the banks need to do what they can to work out the best solutions for them.”

In some cases, companies perceive a lack of development as banks' uncertainty or inability to change. 

Corporates want to see action, Reyes says, adding: “Since the environment is not clear, clients want to push ahead and know the economics of where will be operational should they need to move operations. And we need to keep the needs of the client at heart.”

On top of keeping their clients’ cash moving smoothly, banks are concerned at what their own operations will look like. There is plenty of speculation about if, and where, banks will choose to move parts of their business. 

Citi, Morgan Stanley and Standard Chartered reportedly have plans to base their EU operations out of Frankfurt. Meanwhile, Barclays is looking towards Dublin as the base for its European business.

HSBC’s international presence means there is not the same push to transfer services, as is being seen with some of its competitors, although it has been indicated some of its workforce might relocate to Paris in the case of a hard Brexit.

“How banks are reacting depends on the size of the teams they already have in other European countries,” says Reyes. “Since we have a strong presence in several locations, it is not too much of a problem, but some others are looking into transferring operations to Frankfurt and Dublin in particular.”

For some, it will mean leveraging the advantage of their home market. 

Paul Saltzman, head of global transaction banking, Americas, at Deutsche Bank, says: “We are providing clients with guidance around Brexit and are uniquely positioned to do so as a global bank headquartered in Germany. Our aim is to provide the same quality of services to all our clients, regardless of the outcome.” 

Since April, the Bank of England has required all banks, insurers and investment funds with operations in the EU to submit a contingency plan. They are required to submit details on how they would proceed in a number of scenarios.  

“We have submitted our contingency plans to the regulator,” says Mclean at Lloyds. “We believe the UK economy is resilient and have confidence that businesses will continue to prosper regardless of the outcome.”

It is not just the UK that wants to know what the plans are. German regulator BaFin has asked for UK insurance companies to provide them with detailed instructions on what they plan to do in the case of a hard Brexit.

Saltzman at Deutsche says: “We want to have more than a contingency plan for our clients, and actually have solutions ready for them should they be needed.”

For companies and banks based on the continent, what Brexit will mean is less of a concern. A banker from one institution says some clients have been asking questions, but “so far it is not something that is upsetting them too much”.

Regardless of the outcome of the Brexit negotiations, there is the possibility some companies will have already decided to move part of their operations onto the continent permanently. 

Reyes says: “Regulators on the continent are certainly seeing the prospects opening up to them, so are becoming friendlier in their approach to regulations.”