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UK institutions who chose Belgium as an EU base post-Brexit need to consider bringing more operations to the country from the UK, the National Bank of Belgium (NBB) has said.
The locally allocated resources and locally embedded control framework must continue to develop to match the materiality of the EU subsidiaries of UK payment institutions (PIs) and electronic money institutions (EMIs) in Belgium, the NBB said in its 2022 annual report.
These institutions are quite significant in terms of the number of clients transferred from the UK to the Belgian entity, therefore making them important players in the Belgian and EU payments landscape, the central bank said.
However, a large part of the operations, notably Treasury and IT departments, typically end up staying within the parent company in the UK.
This means that often UK teams are performing services for the Belgian entity by means of intra-group outsourcing arrangements.
“The local subsidiary must therefore ensure sufficient available and locally dedicated resources at all times to maintain close monitoring of these outsourced activities,” the regulator has said.
Indeed, the Belgian entity must remain responsible for these outsourcing arrangements, as well as exercise proper oversight and control over the outsourced activities.
“In that perspective, intra-group service level agreements, intended to legally define the level of services expected from the provider of the outsourcing to the institution, must be sufficiently precise and robust to allow for appropriate monitoring and reporting to the institution’s management,” the NBB said.
Companies have also been advised that as they develop, the local management bodies of the Belgian subsidiary entities should continuously assess and ascertain that they are properly set up and sufficiently substantial to act with full autonomy.
As they develop, the local management bodies of the Belgian subsidiary entities are recommended to “continuously assess and ascertain” that they are properly set up and sufficiently substantial to act with full autonomy.
This, the NBB said, provides evidence that the decision-making power is located in Belgium, avoiding the risk that the central administration of the institution is not considered to be located in Belgium, and proving that it complies with the relevant regulatory requirements.
The annual report also pointed to the three lines of defence model in its recommendations for PIs and EMIs, which are designed to ensure that their Belgian subsidiaries are commensurate with the size and materiality at all stages of their development.
In that regard, the NBB has advised that the second and third lines of defence must ensure at all times and in all circumstances that there is proper experience and knowledge of the Belgian regulatory landscape, sufficiently developed local risk and audit functions, including appropriate staffing and complete mandatory compliance and audit documentation.
Management bodies must actively follow up on control function reports and recommendations, the NBB said.
