The European Central Bank has demanded U.K.-based lenders with EU offices complete "action plans" showing they are ready for a no-deal Brexit as banks claim the success of working from home during the coronavirus pandemic makes staff moves less necessary.

The central bank has warned that some banks still have not moved sufficient staff or resources to their EU operations or provided details on how they intend to operate in the event of a no-deal Brexit with the end of the year-long post-Brexit transition period approaching. Major U.S. banks are understood to be the main targets of the ECB's request.

Some banks are understood to have used the pandemic as a reason to justify their delay in sending sufficient personnel to new offices in the EU.

"A lot of banks have slowed down the process of bringing staff over to the EU and have blamed the coronavirus situation for that. But a lot of banks have also argued that because remote-working has proved so successful during the pandemic, they no longer need to bring staff over to their EU operations. But the ECB does not agree," said a source familiar with the ECB requirements.

A source at a leading U.K.-based international bank, who declined to be named while Brexit talks continue, said the pandemic had provided banks with reasons to challenge the ECB's staffing requirements.

The ECB supervises 25 banks that have set up operations within the EU in preparation for Brexit, while there are 10 others that have increased the size of their operations within the eurozone.

'Action plan'

The ECB sent out templates for the banks to complete in August asking for details of their progress toward meeting the central bank's demands on issues such as booking models, where banks managed credit risk and governance. The central bank asked banks to fulfill certain requirements or, if their answers were not satisfactory, to provide it with an "action plan" explaining how they intended to do so.

However, a number of leading banks contacted by S&P Global Market Intelligence insisted they had complied with all the requirements of the ECB in relation to post-Brexit operations.

"We decided immediately after the referendum [on Brexit] that we would prepare for a potential loss of passporting [ability to sell services across the bloc] and we shifted people to within the EU and set up independent operations in various sites. We are ready for whatever happens in the Brexit negotiations and have been for some time," said a source at a leading U.S. bank who declined to be named.

JPMorgan Chase & Co. will shift €200 billion in assets to Germany, according to Bloomberg News, which also reported that the U.S. lender recently told 200 staff to move out of London to cities including Paris, Milan and Madrid, as well as Frankfurt, Germany, in expectation that the U.K. and the EU would not reach a deal on financial services.

The U.K. exports more than £26 billion in financial services to the EU, according to the U.K. Office of National Statistics. Accountancy firm EY has been monitoring the move to the EU by banks and financial services companies, and said earlier this year that 41% of those companies surveyed claimed they were considering relocating or had relocated staff to the EU ahead of a full Brexit. EY has estimated that banks and fund managers have committed to move £1 trillion of assets out of the U.K. and into the EU as a result of Brexit.

'Match fit' for Brexit

The ECB is also checking up on the banks' operational resources at their EU offices. In particular, the regulator is keen to ensure that EU-based banks are able to operate on a stand-alone basis after Brexit and will not be too reliant on back-to-back booking.

Back-to-back trading allows a bank in one jurisdiction to carry out a duplicate transaction in a larger location, so a deal done in Brussels, for instance, can be booked in London. This allows U.K. banks to centralize their capital and risk management in London while selling their services in the EU. However, the continuation of such arrangements after Brexit has been under threat after the ECB said EU banks should not rely on back-to-back hedging with banks in third countries. The U.K. will be regarded as a third country after its full exit from the EU.

"The ECB is encouraged by the fact that some banks have substantially reached their target operating model already or are well on track towards that target. There are other banks that still need to make progress, both in terms of relocating assets and staff. Our joint supervisory teams have engaged with these banks to make sure there is a shared understanding of the path towards the target operating model. The ECB stresses that this is not about moving assets and staff alone. It is also about aiming to be structurally profitable, being operationally self-standing in key areas and most importantly not excessively reliant on back-to-back booking to the parent," the ECB said in a statement.

UK Finance, which represents U.K.-based banks, said the banking sector was planning for all eventualities, including a no-deal Brexit.

"Firms are therefore focused on getting 'match fit' for Britain's updated regulatory regime to minimize any disruption next January," it said in statement.