The Bank of England has suggested that it will allow EU banks with branches in the UK to continue to be able to trade in the UK even if reciprocal ‘passporting’ rights are not agreed as part of the Brexit negotiations.
This means that rather than setting up separate UK bank subsidiaries, securing UK banking licences and establishing new capital reserves in the UK, they could continue merely as a branch only of the EU bank authorised in Germany, Spain, Italy, France or wherever.
- EU banks not having to relocate thousands of staff and operations out of the UK.
- EU banks still having access to London, the World’s financial capital, and its global market appeal.
- Access to a ready supply of experienced staff.
- Profits made in London trade will not be taxed in UK, there is no revenue for UK.
- EU may not reciprocate for UK banks in Europe.
- Other non-EU banks may look for and demand the same
- What if an Italian Bank is in trouble in Italy? Will funds be drained out of the UK ‘branch’ and sent to Italy putting UK investors at risk? Wait a minute, isn’t that what the Icelandic banks did and when they collapsed the UK Financial Services Compensation Scheme, Dutch and Isle of Man Compensation Schemes were left out of pocket in the £billions. It is only in the last 18mths that funds have been fully recovered, some 8 years on.
Why propose this now?
We guess the Bank of England and the Treasury are trying to push for a single market in financial services to protect London and protect jobs. In addition, its an opening gambit on a future possible trade deal between the UK and EU.