European banks 'to be allowed to operate as normal in UK after Brexit' despite EU's own warning over financial services
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Loading... - Amelia Osborne
- 20 Dec 2020
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European banks will be allowed to operate as normal in the UK after Brexit under plans due to be announced by the Bank of England, according to reports.
The BoE's plans are said to allow European banks to carry on operating without having to convert their branches in the UK into subsidiaries and without having to adhere to additional regulations.
The disclosure is likely to spark political controversy as it comes after Michel Barnier, the EU’s chief Brexit negotiator, ruled out a special deal to protect the City of London’s ability to trade on the continent.
Meanwhile, Brussels is set to try to impose tough rules on British banks during the Brexit transition period.
The European Commission will today consider draft legislation that proposes greater scrutiny of financial hubs outside the EU, with the option of removing access to the EU market if their rules are not deemed to be "equivalent" to EU standards.
The future of financial services has emerged in recent days as a key Brexit battleground.
Mr Barnier said if the UK leaves the European single market then the country’s crucial financial services sector will lose the right to trade freely in Europe.
But Theresa May has insisted that she wants a bespoke deal with Brussels while David Davis, the Brexit Secretary, has said he wants to do a “Canada Plus Plus Plus” deal combining trade and special arrangements for financial services.
The Bank of England’s decision to allow European banks to continue to operate after the point of the UK’s withdrawal from the bloc as they do now adds another wrinkle to the Brexit landscape.
The plans, first reported by the BBC, will apply to providers of wholesale finance - services provided to institutions and large businesses that generate hundreds of billions of pounds for the economy.
Financial regulators require foreign banks with subsidiaries in the UK to be separate legal entities and hold large capital reserves in case of a market crash, stopping them from pulling out in such an event and taking customers' funds with them.
The same rules do not apply to branches of foreign banks. Forcing foreign banks to convert their branches to subsidiaries after Brexit would risk them pulling out altogether due to the large cost of doing so, reported to be in the billions of pounds.
Financial services account for a large proportion of the UK economy and generate billions in tax for the Government.
Should the City become a less attractive location for such EU banks to operate, it could also put thousands of jobs on the line.
