British Banks face tougher rules to access EU markets after Brexit (2024)

British banks will have to stick closely to EU rules on issues including bonus caps if they want to keep trading in Europe after Brexit, it will be ruled today.

The European Commission is due to set out its terms for allowing the City of London to continue as the EU's leading financial centre after Brexit.

Brussels will demand equivalence with EU standards - a solution that could allow Britain to leave the single market while letting the City keep working.

In return, the Bank of England announced today it would allow European banks to carry on in London without setting up a new subsidiary even if there is no Brexit deal.

The central bank said it made the decision on the assumption that a 'high degree of supervisory cooperation with the EU' would continue after Britain leaves the bloc.

Governor Mark Carney explained the reforms, which impact on the 77 European banks working in London, to MPs on the Treasury select committee today.

Financial services is Britain's biggest industry and resolving how it will work after the UK ceases to be an EU member is a major headache in the negotiations.

The outline of an agreement emerged today despite warnings yesterday from EU negotiator Michel Barnier that no EU trade deal model covers financial services.

The draft EU rules will increase scrutiny on brokerage and investment banks in London compared to current UK regulations.

British banks would also have to observe EU rules on bankers bonus pay - something which was bitterly opposed by George Osborne as Chancellor and could have been a target for being scrapped by Brexiteers.

Following the Bank announcement, Chancellor Philip Hammond said:'As we leave the EU, we are committed to ensuring that the UK remains the preeminent global financial services centre.

'I am confident that we will agree a deep and special partnership for the future with the EU27 and that we will soon finalise the terms of an implementation period that will ‎provide continuity as we move to that new partnership.

'The measures announced by the Bank of England and the FCA today will ensure that the UK's exit from the EU is smooth and orderly, will underpin the UK's status as a global financial services sector and will ensure that UK consumers are protected.'

The EU's plan, seen by the Financial Times, says there is a 'need to update the regulatory architecture in the EU' to address the 'pivotal role played byUK investment firms in this area to date [and] the decision of the UK to withdraw from the Union'.

On the UK side, the Bank of England willallow European banks to continue selling their services in the United Kingdom without having to create expensive subsidiaries after Brexit.

It will mean many banks in London will not face new hurdles to operating in London, which vies with New York for the title of the world's financial capital.

The Bank of England said: 'Keeping the UK's financial system open to foreign institutions is in the best interests of the UK, EU and global economies.

'The UK's financial sector also brings substantial benefits to EU households and firms, allowing them to access a broad range of services efficiently and reliably.'

There are currently 160 international bank branches operating in the UK, 77 of which are from the European Economic Area (EEA), with assets of more than £4 trillion.

The BBC quoted unidentified government and industry sources as saying they supported the decision.

More than 100 banks operating in London are branches of lenders headquartered elsewhere in the EU. Currently, they operate in Britain under EU 'passporting' rules which are due to expire when Britain leaves the bloc in March 2019.

The Bank had previously said it would let banks know before the end of the year whether these branches must reapply for branch licences to operate after Brexit, or would need to be turned into subsidiaries, a costlier option for banks.

Switching from being a branch to a subsidiary means having to build up buffers of capital and cash locally.