- Britain’s looming exit from the European Union is putting cross-border payments at risk, according to a Reuters report
- The Royal Bank of Scotland needs to get its licenses to continue clearing payments
- The bank says that it will take a ‘significant hit’ if it does not get its licenses
The chaos surrounding Britain’s exit in March threatens Royal Bank of Scotland’s capability to process over 50 billion euros worth of cross-border payments. The amount is usually processed by the bank on a daily basis without any hiccups, but the financial institution may be facing a huge problem soon.
RBS said in a statement that it is expecting to get its licenses soon to continue clearing these payments. It will be doing so through its Frankfurt branch, according to reports, and the licenses are expected to be granted before Britain’s departure from the union. However, RBS told Reuters that it risks a “significant hit” if the licenses aren’t granted.
“Given the quantum of affected payments and lack of short-term contingency arrangements, in the event that such euro clearing capabilities were not in place in time for a Hard Brexit or as required in the future, it could have a material impact on the Group and its customers”, RBS said.
Experts are anticipating a hard Brexit, where Britain leaves the European Union without a deal. While the bank talked about payments, remittances might be affected too according to observers, as payments across the board aren’t just done by corporations or businesses. While the country lacks an official mechanism for recording remittance outflow, many migrants working in Britain transfer money internationally on a regular basis. This has become more frequent lately as London’s fintechs have started offering affordable overseas transfer rates.
With TransferWise’s move to Brussels, it is expected that sending money to family and friends abroad will be more expensive. It is noted that there are other remittance services, but TransferWise’s decision to move its operations to Europe is indicative of what is going to happen in the very near future.
Based on data from The Migrant Observatory, remittances sent from the United Kingdom “vary widely from £1.5 billion to £16.5 billion”. It is noted by main data sources that the country is among the top 10 remittance senders in the world.
Reuters reports that the RBS disclosure is among the most detailed yet, and it is expected that other banks will have similar problems. Mrs May has been trying to remedy the British predicament but suffered yet another defeat last week as EU leaders undermined her promise to get a deal approved by Commons if concessions are given. If a deal is not approved in time for the scheduled exit, the country will no longer have access to Europe’s financial markets. London, according to observers, is getting ready for 29 March, but the preparation for a potential crash is reportedly not enough.
RBS also noted that Brexit will likely hurt the bank and affect its ability to reduce costs. The financial institution is also likely to have problems in managing Euro denominated cash balances. The amount, according to RBS, is 23 billion Euros.
The fintech sector in the UK is doing its best to cope though, as fintech week aims to keep the country as the centre for payments innovation in the region.
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