European investment banks operating in the UK may still have to undergo a costly operational overhaul due to Brexit, the Governor of the Bank of England, Mark Carney, confirmed today.
The Bank revealed on Wednesday that it would not compel EU-headquartered investment banks to establish separately capitalised “subsidiaries” due to Brexit, but that they could continue to operate as “branches”.
But giving evidence to the Treasury Select Committee, Mr Carney made it clear that this would only remain the case if there was still deep regulatory co-operation with the EU financial authorities indefinitely after Britain leaves the EU.
“In circumstances where we didn’t have that comfort with European institutions post-Brexit we would require them to subsidiarise,” he said.
Mr Carney said that hopes to conclude a minimum two-year transition deal after March 2019 – in which the UK would remain in the single market – meant that it would not make sense for the Bank to compel subsidiarisation on EU investment banks now and then reverse it when such an agreement materialises.
“Now is not the time one has to say: glass half empty, subsidiarise, we’re never going to get a deal,” he said.
“But if it comes to a point…a year from now, and where it doesn’t look like we’re going to have [that] then those directions to subsidiaries would be there”.
There are 77 branches of EU banks in the UK.
“EEA [European Economic Area] banks and insurers may (if they are not conducting material retail business) apply for authorisation to operate as a branch in the UK,” the Bank said in its press release.
For UK banks operating in the EU there is expected to be much more upheaval since the EU has repeatedly made it clear that UK-based financial firms will lose their financial “passport” when Britain leaves the single market.
Many UK-based financial firms are already shifting operations out of the City of London and are bulking up subsidiaries in mainland Europe in anticipation of this.
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