LONDON: The Bank of England is to unveil plans allowing European banks to operate in the UK as normal post-Brexit. The BBC has learned that banks offering wholesale finance – money and services provided to businesses and each other – would operate under existing rules.
It means EU banks operating through branches can continue without creating subsidiaries – an expensive process. Branches offer an easy way for banks to move money around their international operations. But they present the risk that, in the event of a financial crisis, funds are quickly repatriated to the foreign bank’s headquarters – leaving customers of the UK branch out of pocket.
Subsidiaries are forced to hold their own shock-absorbing capital which can’t cut and run – they essentially become UK companies. Changing from a branch to a subsidiary could cost billions for a bank like Deutsche Bank, for example, which employs 9,000 people in the UK.
Currently, banks based anywhere in the EU can sell services to anywhere else in the EU thanks to an instrument known as a financial services passport. On Monday, EU chief negotiator Michel Barnier was talking tough on UK-based financial services access to the European single market after Brexit.
“There is no place (for financial services). There is not a single trade agreement that is open to financial services. It doesn’t exist. In leaving the single market, they lose the financial services passport,” he said.
Which begs the question – if they are playing hard ball – why are we being so nice in rolling out the red carpet?
Miles Celic, head of the lobbying group TheCityUK, said offering continuity to EU banks was an act of goodwill, but it was also one of enlightened self interest.
“Encouraging EU banks to continue to operate in the UK will help preserve financial stability for the UK and the EU and will help defend London’s position as an open global financial centre,” he said.
