Foreign banks in Britain view any attempt to make them convert their branches to subsidiaries after Brexit as a "red line" which would likely cause them to rethink their presence in the country, an industry report said on Wednesday. Deputy Governor of the Bank of England Sam Woods said earlier this year that branches of European Union banks in London might have to apply to become subsidiaries after Britain leaves, a costly exercise that involves building up capital and reserves locally.
Several European banks base the bulk of their investment banking activities, such as sales and trading, in London, operating via a branch structure that relies on capital held by their parent and are mainly supervised by their home regulator. "A requirement to subsidiarise was a clear "red line" for most branches, with both EU and non- EU branches confirming that a subsidiarisation approach would cause them to reassess their presence in the UK, possibly leading to the closure of the UK branch," the report by the Association of Foreign Banks (AFB) and law firm Norton Rose Fulbright found after surveying senior executives from global banks.
Woods has said that he will have to decide by Christmas if branches of EU financial firms in London must convert to subsidiaries and be directly supervised by the (Prudential Regulation Authority) PRA.
British regulators have been comfortable with this situation with Britain as part of the EU, but once Britain leaves they will want these banks to have enough capital to support their business and ensure that British taxpayers are not left footing the bill in a crisis. The focus so far has been on banks based in Britain applying for licences to operate on the continent once Britain leaves the EU.
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