The Bank of England plans to allow European banks to maintain their UK operations under current rules following Brexit, in a direct challenge to European Union regulators to adopt the same policy towards UK-based banks.
The Bank said it wanted to press ahead with assessing the risks posed by the 177 banks and insurance companies based in the European Economic Area that have branches in London, following the agreement between Theresa May and EU officials to move to the second stage of Brexit talks.In a move that pre-empts trade talks between the UK and EU, the Bank said it would assess each foreign bank’s branch operation to decide whether it needed to be converted into a subsidiary, which effectively separates it from its overseas parent with its own capital.
Banks domiciled in the EEA will be keen to maintain UK branches, which are cheaper to run and come under more direct head office control. They also maintain their chief regulator in their home country.
Most branches are expected to retain their current status despite needing to satisfy stringent rules. The BoE said it would carry out a broad assessment of the risks posed by branches, though it would rely heavily on cooperation with regulators across the EU.
Branches that are considered to pose a systemic risk to London’s financial centre could be forced to convert to being subsidiaries.
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