Banks in the UK are coming under growing pressure from regulators to get their new hubs in the European Union up and running even as Covid-19 and foot-dragging by clients disrupt Brexit relocation plans, banks and regulators say.
Unfettered direct access to the EU for Britian's financial services sector, worth around £26 billion a year, ends on December 31 and few bankers are betting on an extension.
More than 60 banks in London have set up or expanded operations in the bloc, think tank New Financial has calculated but with just four months to go, not all are ready.
"Many institutions in the EU are too small to be viable and are not doing a lot of business yet as clients want to remain connected to deep liquidity in London," said John Liver, a partner at EY, which is advising banks on their Brexit plans.
But he added that regulators were hardening their "encouragement" for banks to move the "centre of gravity" of their euro-denominated business from London and demonstrate the viability of new continental hubs.
Given several near-miss hard Brexits already, some banks have delayed moving people and causing unnecessary disruption for teams and their families, a source at one global bank said.
The unexpected success of remote working during the pandemic has also raised the question of whether as many bankers, traders, risk managers and support staff need to cross the Channel once the transition period ends.
"We are wondering why EU regulators need all those people to be physically on the ground in the EU when they can comply with the rules of EU from anywhere," the banking source said.
"The pandemic has highlighted how political this issue is," the source added.
With no possibility of direct EU-wide access from January, banks in Britain will have to rely on a patchy web of bilateral agreements with national regulators.
The European Banking Authority, the bloc's banking watchdog, said it understood the impact of Covid-19 on Brexit plans but hubs still needed to be ready before January.
"The pandemic has created challenges in some of the plans and some adjustments have been agreed, but the overall principles remain the same," said Piers Haben, director of banking markets, innovation and consumers at the European Banking Authority (EBA).
"The mind and management of the bank must be in the single market," he added.
A second international banking source said clients were in no rush because they can switch business between jurisdictions at relatively short notice, but staff dealing with EU clients, either from the office or home, must be based in the bloc from January because that is where they will be authorised and taxed.
With Covid-19 knocking the economy and clients' operations, there are also questions about the financial sense of running a UK and an EU hub.
The new hubs want to know how long European Central Bank supervisors will allow "back-to-back" booking, where banks can record EU trading and service activities centrally in London to avoid duplicating costs, the second banker said.
"Everyone is working on the assumption we are on a path to ending it but not yet; a planned programme rather than a guillotine in January."
A spokeswoman for the European Central Bank said some banks had hit target operating models already or were on track to but others were falling short of expectations.
"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," she added.