Catalan President Carles Puigdemont’s declaration to suspend independence on Tuesday may have disappointed the ‘Catalexit’ camp, but a move to immediately break away from Spain would have triggered insurmountable challenges, including financial regulatory obstacles.

Addressing Cataln’s parliament, Puigdemont called for the “suspension of the effects of the declaration of independence” in order to engage in dialogue.

Ahead of his much-anticipated speech, his government had been locked in confrontation with Spain since holding a referendum on 1 October, which resulted in almost 90% of voters backing independence.

The vote was declared illegal by Spain and European Commission.

No EU backing

Embarking on independence would be complicated by the fact that it does not have the backing of Spain or the EU, experts say.

A full-out declaration of independence would have resulted in Catalonia’s immediate expulsion from the EU.

“For the European Commission, as President Juncker has reiterated repeatedly, this is an internal matter for Spain that has to be dealt with in line with the constitutional order of Spain … if a referendum were to be organised in line with the Spanish Constitution it would mean that the territory leaving would find itself outside of the European Union,” the EC said in statement following the October vote.

What the Catalan government wants is negotiating material, and it is unlikely that they have the structures in place to declare independence, said Christian Kaunert, academic director of the Institute of European Studies at the Free University of Brussels.

“Catalan would face problems in banking regulation and the single market, for example they will likely face challenges regarding resources and staffing. In the meantime there will be legal uncertainty, issues like who will police or regulate what laws, and so on.”

Compliance and AML

Following the referendum, key Catalan banks, drawn by of prospects of being covered by the EU if they remained under Spain, swiftly relocated their headquarters there.

The likes of CaixaBank and Banco Sabadell chose Valencia and Alicante respectively, citing the “protection of the interests of customers, shareholders and employees.”

CaixaBank highlighted the advantages of being part of the euro zone, under the supervision of the European Central Bank.

“Continuity in the euro area ensures CaixaBank continues to have optimal financing conditions to maintain the flow of credit to families and businesses in Catalonia and the rest of Spain as well as to preserve the integrity of its customers’ deposits,” it said.

Spain also has relatively strong measures to tackle financial crime such as money laundering and terrorism financing.

The Financial Action Task Force’s 2014 evaluation of Spain found it has “up-to-date laws and regulations and sound institutions for combatting such threats, in particular a strong financial intelligence unit.”

Generally, an independent Catalonia would still likely seek to be part of the single market and comply with EU legislation.

However, it would be a ‘mammoth’ task ahead as it would need to draft a whole raft of laws, said Nicholas Ryder, financial crime professor at the University of the West of England, Bristol.

An independent Catalonia would also have to ensure that compliance and enforcement aspects, such as its suspicious transaction reporting regime, financial intelligence unit and mutual evaluation teams are all in place and there’s a sound legal framework, he explained.

It would also want to abide by laws such as the Fourth Anti-Money Laundering Directive as well as EU and UN sanctions, but “an important question is if they will have the resources to keep up with and also implement these AML and sanctions regimes?” he said.

“As a solution they may have a risk-based model to reduce some costs. [However] compliance costs are generally high, so that may present a challenge for government and industry.”

Catalexit versus Brexit

As to what Puigdemont’s next move will be remains to be seen.

The prospect of negotiating an independence deal in the near future seemed dim on Tuesday night after his speech, which Spain is understood to have criticised.

“It’s unacceptable to make a tacit declaration of independence to then suspend it in an explicit manner,” a central government spokesman reportedly told AFP news agency.

And pro-independence supporters hoping the Catalan government will be able to embark on independence negotiations, like Britain has, may be disappointed.

The difference between Catalexit and Brexit is that Britain has the structure and capacity to negotiate, including a well-established banking industry and advanced legal systems, Kaunert said, “Catalan does not have this. It has to create everything from scratch – all its capacity is basically in Spain, its capacities are in Madrid.”

Last week, an economist at Dutch bank ING reportedly said Catalonia breaking away from Spain would place the region into uncertainty and could end up having negative effects that “proportionally exceed” those of Brexit.

– By Irene Madongo

(PHOTO: Fredrik Rubensson )