Bank of England will allow EU banks to operate as normal after Brexit

The Bank of England has unveiled plans allowing European banks to operate as branches post-Brexit without having to set up costly subsidiaries

There are currently 77 banks operating in London which are branches of lenders headquartered elsewhere in the EU (AFP/Getty)

The Bank of England has proposed new plans that will allow European banks to continue operating under existing rules in the UK post-Brexit.

This means that EU banks will be able to continue operating through branches in the UK and will not have to create costly subsidiaries.

The bank said that it made the decision based on the assumption that a “high degree of supervisory cooperation with the EU continues” once the UK leaves the bloc.

There are currently 77 branches of banks operating in London that are branches of lenders headquartered elsewhere in the EU.

These banks operate in Britain under EU “passporting” rules which will expire when Britain leaves the union in March 2019.

A subsidiary bank is a local branch of a bank based in another country which has to follow the host country’s central-bank regulations.

Setting up a subsidiary involves building up capital buffer reserves in case of a market crash and changing could cost banks millions.

There are fears that if European banks such as Deutsche Bank and BNP Paribas are forced convert their branches to subsidiaries they could choose to relocate elsewhere.

The EU’s chief Brexit negotiator Michel Barnier said in November that when the UK leaves the single market financial-services firms based in Britain will lose their passporting rights.

“On financial services, UK voices suggest that Brexit does not mean Brexit. Brexit means Brexit, everywhere,” Mr Barnier told the Centre for European Reform.

Catherine McGuinness, policy chairman at the City of London Corporation, said the decision by the bank “was a welcome bit of news” at the end of the year for the City.

“EU banks are a significant element of the 1.1 million jobs and £72bn that the financial services sector generates in tax revenues each year. They are also one of the many elements, along with our openness and attractiveness to international business, that make us such an attractive global financial centre,” she said.

“This development would provide greater certainty that businesses always crave. We are pleased to see this development and it is now up to our politicians and regulators to make sure this is delivered,” she added.