By Laura Noonan, Martin Arnold and James Shotter From Financial Times

 

British regulators have told at least one major EU bank that it will not be forced to establish a separately capitalised UK subsidiary as a result of the Brexit vote, a person with direct knowledge of the situation told the Financial Times.

Several large EU banks — including Commerzbank, Deutsche Bank, Société Générale and BNP Paribas — carry out business in the UK through branches of their EU parent companies.

Experts had warned this set-up could be threatened by the UK’s planned exit from the EU, with the Boston Consulting Group claiming European banks could have to put as much as €40bn of capital into new UK subsidiaries.

A senior executive at one of the large EU banks, however, said the Bank of England had reassured him there would be no demand for a subsidiary — in the near future, or after Brexit.

The banker would not speak publicly as discussions with regulators are private. The other large European banks would not discuss the details of their conversations with the BoE, but some said it was too early to say what the resolution would be.

The BoE declined to comment. A person briefed on the matter said the BoE’s Prudential Regulation Authority (PRA) had been approached by several banks based in the rest of the EU asking what Brexit means for their UK operations.

The regulator has responded by saying its policy and risk appetite on foreign banks’ operations in the UK has not changed because of Brexit, the person said, adding “this doesn’t mean there is a blanket commitment to never change the supervisory approach to an individual bank”.

If the UK leaves the EU, any banks based in the single market will almost certainly have to reapply to maintain activities in the country. Under the EU’s passporting agreement, banks based in the bloc can automatically operate in the UK through lightly regulated branches, rather than more heavily supervised subsidiaries.

The PRA’s record showed 78 banks based in the European Economic Area — which comprises of all EU members plus Iceland, Liechtenstein and Norway — who make use of these passports to access the UK market through branches. The banks range from the German and French industry giants to smaller institutions such as Norddeutsche Landesbank Girozentrale and Alpha Bank.

Some non-EEA banks also use branches so subsidiaries based in other EEA countries can access the UK. Examples include Bank of New York Mellon SA/NV, the Belgian-based offshoot of the US-based group and Banco Bradesco Europa, the Luxembourg-based subsidiary of the Brazilian banking giant.

The PRA has said it will continue to allow banks to operate via branches if they do not take retail deposits, if their parent supervisory regime is considered equivalent to the UK’s and if they have a robust resolution plan to wind down in a crisis.

IMAGE: ©EPA The Bank of England

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