London. Banks in London are preparing to move hundreds of thousands of contracts they expect to be rendered invalid by Brexit to continental Europe, in a process known as "repapering," marking a major step in their adjustment plans.
The Bank of England has said that 6 million insurance policyholders in Britain could be affected by the country's planned exit from the European Union in early 2019, along with trillions of pounds of derivatives deals.
"We have over 100,000 transactions at present with the EU," John McFarlane, chairman of Barclays, told a parliamentary committee hearing this week.
"We may have to repaper hundreds of thousands of contracts," he said, referring to rewriting these contracts in EU law.
Senior bankers at several major financial institutions in London, who asked not to be named, have told Reuters that most were getting ready to reword millions of documents to relocate parts of their European to prepare for the likely loss of London's access to the wider European market.
This would impact clients - including companies, other banks and investment funds - who have taken out contracts for products such as derivatives, loans and swaps which are booked through London.
In order to keep the relationship as it stands, a British bank would need to shift the contract to an entity based in Frankfurt, for example, giving it access to the single market.
"The thing that is irreversible is repapering. That will start in the second quarter [of 2018] as you won't want to move clients again," said one senior banking executive, adding the process would take six to nine months.
"You have to send out letters to every client, we're talking about thousands of EU clients. We are building the hospital and we are just waiting for the patients to arrive."
The move when it comes will mark another milestone for Britain's financial services sector in the wake of Brexit, a shift that is expected to give increasing weight to other financial centers in continental Europe.
Banks have so far focused on applications for new or expanded licences in Paris, Frankfurt, Dublin or Luxembourg that would allow them to maintain services with EU customers and the task of rewriting contracts would likely follow these.
Point of No Return
Transitional arrangements between Britain and the EU could give more time for repapering to be completed and some in the industry are also proposing grandfathering some contracts.
But with uncertainty as to whether a phase-in agreement will be reached, banks are pressing ahead.
"One practical issue is where are you in the queue for a licence, as you need the licence to start servicing clients from your new location," said David Lawton, a managing director at A&M consultants.
Banks will then have to ask each customer for permission to switch, a bureaucratic and time consuming process - and not one they want to reverse at the risk of annoying customers.
"Some clients might say they don't want to move to Germany but prefer Singapore or New York," the banker said.
The process will mean banks contacting thousands of clients with the aim of completing the work by March 2019 in case there is a "hard" Brexit and contracts still based in London for EU customers become mired in legal uncertainty.
"They are thinking long and hard about doing it and how it would be done," one lawyer working with the banks said.
"This is the point of no return."