Out-Law News | 21 Dec 2017 | 5:01 pm | 1 min. read
David Heffron of Pinsent Masons, the law firm behind Out-Law.com, said the BoE's proposals should help London retain its status as one of the world's leading financial centres.
In a consultation paper (32-page / 786KB PDF) published on Thursday, the BoE said that the end to 'passporting' rules applying in the UK post-Brexit would mean that firms will be obliged to be authorised by the Prudential Regulation Authority (PRA) to continue operating in the UK from the point at which the UK leaves the EU.
However, it said it plans to enable banks based in the European Economic Area (EEA) to "apply for authorisation as branches unless they are conducting material retail business".
The plans are based on its assumption that the UK and EU will reach an agreement in their talks regarding future trading relations confirming mutual recognition of the equivalence of their regulatory regimes, it said.
Where banks intend to carry out "significant retail banking activities" in the UK post-Brexit, they will be required to apply for authorisation to operate UK subsidiaries, Sam Woods, deputy governor of the BoE and chief executive of the PRA, said in a letter to firms (3-page / 243KB PDF).
"Keeping the UK’s financial system open to foreign institutions is in the best interests of the UK, EU and global economies," the BoE said in a statement.
Heffron said the proposals, which will allow international braches to continue to operate in the UK without having to form a subsidiary, which would be subject to direct PRA supervisory control, will be welcomed by the City and EU banks with branches in London.
"The proposals should also assist on ensuring that London maintains its position as a leading financial centre providing deep pools of capital to international markets," Heffron said. "The proposals present a measured and pragmatic approach to the challenge of EU banks having to establish subsidiaries in the UK, resulting in greater costs and regulatory oversight, as a result of the loss of the EU passport post Brexit."
"For systemic wholesale branches, being those which are deemed systemically important against a number of factors, the PRA will need to assess the overall supervisibility of the international bank operating through a branch and in doing so will place great weight on the extent on quality of cooperation with the bank’s home state regulator," he said.
"Assuming there continues to be a high level of cooperation with EU regulators post Brexit, as these proposals assume, there should be little change for EU banks operating through branches in the UK as a result of Brexit," Heffron said.
The BoE's plans are open to consultation until 27 February 2018.