Bank flags up loan fears for British firms after Brexit
British firms may find it harder to source funding after Brexit unless European lenders ramp up their contingency plans, the Bank of England has warned.
The Financial Policy Committee (FPC) said it was concerned that financial institutions from the European Economic Area (EEA) were ill-prepared for a scenario that would force them to apply for new licensing to continue operating in the UK.
"The risk of disruption to wholesale UK banking services appeared to be slightly higher than previously thought, given that a number of EEA firms branching into the UK were not sufficiently focused on addressing this issue," the FPC said, according to minutes from its September 20 meeting.
"Absent an appropriate agreement in place at the point of exit, EEA firms branching into the UK would need to apply for new authorisations from the PRA (Prudential Regulation Authority) in order to continue to carry out regulated activities here.
"These branches accounted for around a tenth of lending to UK companies." The FPC said most European firms were relying on a "greater degree of co-operation" between the UK and EU.
But Sam Woods, head of the PRA, warned last month that it would be "unwise" for companies to bank on a transitional agreement which could temporarily extend cross-border agreements for financial services.
While Prime Minister Theresa May has offered to continue paying into EU coffers during a two-year transitional period, a final agreement has yet to be struck. Firms would need to start applying for permission to operate in the UK within the first three months of 2018 in order to ensure a smooth transition to post-Brexit relations after March 2019, the FPC said.