[...] Loopholes being examined include “back-to-back trades” in which products are sold by an entity in the EU before the risk is transferred to the UK via an internal trade. They are also examining arrangements, known as “reverse solicitation”, in which cross-border trades are arranged at the client’s initiative, without the bank actively seeking their business.
Other workarounds being considered involve fund managers delegating business from European-based branches back to a UK parent, or British-based banks outsourcing activities to a separate EU operation. European clients could also be encouraged to establish a “brass-plate” entity in the UK to conduct capital markets transactions.
Some senior European bankers said privately that certain loopholes, such as back-to-back trades, could provide a short-term fix to cover the loss of passporting rights for their UK business — giving them more time to find a long-term solution.
“We are looking at doing more back-to-back trades, where fees are booked locally and then the deal is transferred through a back-to-back deal to be booked in London,” said the head of one European investment bank.
However, some lawyers and senior bankers warn that EU regulators could frown on such loopholes and try to close them off, even though they are legal.
“It is right that [back-to-back trading] does exist today and it does happen,” said Simon Gleeson, a regulatory partner at law firm Clifford Chance. “The problem is that you no longer have all parts of a trade in one place and from the perspective of the local regulator, back-to-backing is actually quite uncomfortable.”
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