How Wells Fargo is preparing for Brexit
An overview of the company’s strategy for managing the changes that will result from the United Kingdom’s exit from the European Union.
For context, what does Wells Fargo’s U.K. and European presence look like?
Wells Fargo has approximately 1,500 team members located in nine countries in the Europe, Middle East, and Africa region. The international offices are dedicated exclusively to supporting mid- and larger-sized companies. Specifically, Wells Fargo serves corporate, commercial, government, and financial institution customers, including pension funds, sovereign wealth funds, and central banks. It does so through lines of businesses including corporate and investment banking, commercial real estate, capital finance, and asset management. Within the region, we primarily support existing U.S. customers who conduct business internationally, as well as foreign multinationals who conduct business in the United States. Our go-forward international strategy is built on taking a disciplined approach to enabling global businesses; we will deepen our relationships with customers in the U.S. who have international needs we can meet, while pursuing new business in select markets where we have local scale and expertise. We have worked with many of our clients for decades and are well-positioned to grow the business across the region.
What will Brexit mean for the financial services industry?
In simple terms, for the financial services industry — including Wells Fargo — Brexit means that upon the U.K.’s departure from the EU, financial services companies with a U.K. regulatory license will no longer be able to use their U.K. license to do business in the EU, and vice versa, unless an agreement is made with the EU prior to October 31, 2019.
Does that mean that financial institutions can’t do any banking business in Europe?
Not necessarily — it’s not quite that simple. The big issue for financial firms is around leaving the EU’s single market and the loss of “passporting” rights. Passporting means the right for a firm registered in the European Economic Area to do certain business in any other EEA state without needing further authorization in each country. The EU is still a collection of independent countries, each with its own legislation relating to banking. So there’s a matrix of what activities financial firms can carry out in which territories without a local license or exemption. While it would be nice to have one list that sets out which activities non-EU passported firms may be able to do in these countries after Brexit, this will vary both by country and by type of activity.
What is a “Hard Brexit”?
Hard Brexit will occur if there is no agreed-upon deal between the EU and the U.K. and no transition period. In a Hard Brexit scenario, the U.K. is completely out of the EU — including both the single market and the customs union, so the U.K. would have no obligations to follow the EU’s regulations and tariffs — from October 31, 2019. While the EU and the U.K. preliminarily agreed on a two-year transition period, this hasn’t been formally ratified, and it’s unclear whether it will be by the U.K. Parliament. As with all political negotiations, it’s hard to predict when a resolution will occur or exactly what it will be. So, Wells Fargo, like most financial services companies, has been preparing for a Hard Brexit scenario — the U.K.’s departure from the EU without an agreement or transition period.
How is Wells Fargo preparing for Brexit?
Wells Fargo’s approach to planning for Brexit has taken into consideration the political, economic, regulatory, and legal uncertainties that still exist; industry trends; changes in customer behavior; and impacts on our team members. The Brexit Program Management Office is working with a variety of teams across Wells Fargo — cutting across Corporate and Investment Banking, Wells Fargo Asset Management, Legal, Compliance, Human Resources, and more — to prepare for the impacts, with the primary goal of minimizing disruption for our clients and keeping their financial success at the center of everything we do.
We have also used the Brexit preparation process as an opportunity to review our Europe, Middle East, and Africa operating model, which has helped us create a post-Brexit strategy that is designed not only to ensure our compliance with the regulatory changes that Brexit spurs, but also improve our operational effectiveness.
In essence, we have looked at our operations and are in the process of making adjustments to align assets and team members in the legal entities, which will enable us to appropriately and efficiently continue supporting our customers.
Will any Wells Fargo businesses have to alter their location strategy because of Brexit?
In Europe we have an existing licensed bank in Ireland — Wells Fargo Bank International Unlimited Company — which will continue to serve our customers’ banking needs across the European Union.
In addition, to support our EU securities customers, we have established Wells Fargo Securities Europe S.A., which is our new French subsidiary in Paris. Last year, we applied for an investment firm license for Wells Fargo Securities Europe S.A. from the French Prudential Supervision and Resolution Authority (Autorité de Contrôle Prudentiel et de Résolution), which is responsible for supervising the French banking and insurance sectors. We will continue to provide capital markets and investment banking services to customers doing business in the U.K. using our existing U.K.-based entity, Wells Fargo Securities International Limited.
Wells Fargo Asset Management, a business that is part of Wealth & Investment Management, is also affected by Brexit. In addition to our asset management capabilities in London, we have an existing entity in Luxembourg, Wells Fargo Asset Management Luxembourg S.A., and we have received regulatory approval to expand our license to provide discretionary portfolio management and investment advice. This is a logical move, as Luxembourg is a leading asset management and fund management hub within Europe and many of the world’s biggest fund managers use Luxembourg as their distribution center. By expanding our capabilities to become a European marketing and servicing entity, Wells Fargo Asset Management Luxembourg S.A. will continue to support our European institutional customers, as well as international customers. In addition, as part of Wells Fargo’s efforts to support our European customers, Wells Fargo Asset Management Luxembourg S.A. is expanding our continental presence with new branches in Paris and Frankfurt, Germany.
Wells Fargo Asset Management will continue to serve its U.K. and international customers, with interests in the U.K market, through our asset management team in London.
Will Wells Fargo maintain its strong presence in the U.K.?
Yes. Wells Fargo has a long history in the U.K., dating back to the early 1900s, and remains committed to strengthening our operations in the U.K. and serving our corporate and financial institutional customers. In fact, less than one month after the Brexit vote in 2016, Wells Fargo reinforced our commitment to the U.K. through the purchase of a brand new office for all London-based team members at 33 King William Street in the city of London. By acquiring this building, we are consolidating our London presence and assuring our U.K. customers that we will continue to maintain a strong presence in the U.K.
Much uncertainty still exists around Brexit, and the news reports change day by day. How will Wells Fargo handle things if the situation changes?
Wells Fargo is preparing for the extreme scenario, a Hard Brexit. Over the last two years, we have worked closely with our stakeholders, including regulators, to ensure that our Brexit arrangements accommodate our go-forward Europe, Middle East, and Africa strategy and our wider global plans. While there is a great deal of speculation and media coverage as Brexit negotiations continue, we will maintain our conservative strategy of planning for a Hard Brexit scenario until there is an agreement that is ratified by all 28 parliaments (including the U.K. Parliament and the 27 parliaments that will remain a part of the EU post-Brexit) and becomes law.
Even if an agreement including a transition period is reached between the U.K. and the EU before the end of October 2019, there are certain changes we are making as part of our overall regional plans that will support us in rationalizing our operations, and we intend to move forward with those changes as planned regardless. Overall, our Europe, Middle East, and Africa platform may evolve in accordance with a transition period and final deal, but at the center of everything we do is our commitment to delivering a robust and operationally efficient platform, which will support our Europe, Middle East, and Africa customers and help them succeed financially.