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20 December 2017

Financial Times: Bank of England to shield European banks from tougher post-Brexit rules

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The Bank of England will not force all European-headquartered investment banks to ringfence their capital and liquidity in the UK after Brexit, allaying concerns that banking supervisors would require investment banks such as Deutsche Bank to establish expensive new subsidiaries.

Under plans to be unveiled later today, the BoE will say that wholesale banks operating in London can re-apply for their existing status as either a branch or a subsidiary, according to the BBC.

The move is a significant concession from the UK, even as Brussels has been talking tough about what kind of Brexit deal could be expected for financial services. But it would also give the BoE significant leverage over EU-based banks, allowing them to reach back into headquarters operations of lenders who only operate in London as a branch; banks who are run as subsidiaries are able to limit the BoE’s oversight to their UK entities.

Brussels is planning tougher rules for investment banks that would require the UK to tack closely to the EU — including over the bonus cap — after Brexit in order to be deemed “equivalent” and therefore retain access to the bloc, the FT has reported. Michel Barnier, the EU’s top Brexit negotiator, also said on Monday that the alternative route of preserving financial services access for the UK through provisions in a trade deal is not an option.

Subsidiaries, which trap capital in a host nation and require regulation from the host supervisor, are more expensive to run than branches, where foreign banks are overseen by their home regulators and can return capital and liquidity overnight to central treasuries.

The BoE declined to comment on the BBC report.

But the BoE’s position is conditional on how much cooperation there will be between supervisors once the UK leaves the European Union, and where the eventual Brexit negotiations land, people familiar with the situation told the Financial Times. [...]

Full article on Financial Times (subscription required)

© Financial Times

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