BoE to confirm plans allowing European banks to operate as normal after Brexit
The central bank is set to outline the way it will regulate EU wholesale financial services providers on Wednesday.
The Bank of England is expected to confirm that European banks will be allowed to operate under existing rules after Brexit, easing the burden for the financial services industry which has been urging negotiators to strike a cross-border deal.
The central bank is set to outline the way it will regulate EU wholesale financial services providers on Wednesday, with reports suggesting that current regulations will continue to apply even after Britain leaves the bloc.
It means European banks will not need to convert their branches in the UK into subsidiaries, according to the BBC, a move which would have created additional financial burdens on those institutions.
Subsidiaries in the UK stand as separate legal entities and are required to hold large capital reserves in case of a market crash, which is meant to stop them from pulling out in such an event and taking customers’ funds with them.
Those capital requirements do not apply to branches.
If foreign banks were forced to convert their branches to subsidiaries after Brexit, it is believed that many firms would decide to leave the UK altogether rather than taking on the additional costs – reported to be in the billions of pounds.
An exodus would subsequently hit Government coffers, as financial services account for a large proportion of the UK economy and generate billions in tax, and potentially put thousands of jobs on the line.
The Bank of England’s expected regulatory announcement comes just days after the EU’s chief Brexit negotiator, Michel Barnier, warned that the City of London will get no special deal when the UK leaves the EU, despite Prime Minister Theresa May’s hopes of striking a bespoke agreement.
In an interview with The Guardian and European newspapers, Mr Barnier said on Monday there is “no place” for financial services if the UK leaves the single market when it leaves the EU.
He added: “In leaving the single market, they lose the financial services passport.”
But the Bank of England’s regulatory plans still ease the burden on banks, insurers and asset managers that have been waiting for any news over the post-Brexit fate.
Catherine McGuinness, policy chairman at the City of London Corporation, said: “Allowing European wholesale banks to operate as normal in the UK after March 2019 is a welcome bit of news to end the year for the City.
“EU banks are a significant element of the 1.1 million jobs and £72 billion that the financial services sector generates in tax revenues each year.
“They are also one of the many elements, along with our openness and attractiveness to international business, that make us such an attractive global financial centre.”
She said the move would provide “greater certainty” that businesses have been craving.
“We are pleased to see this development and it is now up to our politicians and regulators to make sure this is delivered,” she added.