As Brexit approaches, Japanese financial firms cementing footholds in Europe

JIJI

Major Japanese financial institutions are reviewing their strategies on the locations of business footholds in Europe in the run-up to Brexit, Britain’s exit from the European Union.

Sumitomo Mitsui Financial Group Inc. and Nomura Holdings Inc. have started preparations to set up subsidiaries in Frankfurt, apart from their existing British units, which have served as their core European bases.

They hope to ensure that their operations in the EU will be sustained even after Britain leaves the bloc, officials said.

The EU has the so-called single passport system for financial services, under which a financial institution is allowed to operate in all EU states if it obtains a business license in one member nation.

Japanese financial institutions including Sumitomo Mitsui Banking Corp., the core banking arm of SMFG, currently use their licenses obtained in Britain for their operations in Europe, so they are concerned that they may no longer be authorized to do business in the EU after Brexit.

Nobuyuki Hirano, chairman of the Japanese Bankers Association, or Zenginkyo, said the possible effects on Japanese financial institutions are very significant.

SMFG plans to set up banking and securities subsidiaries in Frankfurt by March 2019. Nomura and Daiwa Securities Group Inc. are also speeding up work to create subsidiaries in the German city.

Bank of Mitsubishi-Tokyo UFJ and Mizuho Bank operate subsidiaries in Amsterdam. Therefore, they expect only a limited impact on their operations within the EU due to Brexit, officials of the two banks said.

While the selection of places for their business footholds in Europe after Brexit differs from company to company, major Japanese financial institutions mostly plan to keep in Britain the control functions overseeing their broader European operations.