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.
The European Commission is due to set out its terms for allowing the City of London (file image) to continue as the EU's leading financial centre after Brexit
In return, Bank Governor Mark Carney (pictured at the Treasury committee today) is to allow many EU banks to carry on as normal in London even without a Brexit deal
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.
- Prime Minister to face live grilling by voters in Dave-style... Britain WILL be able to set its own regulations and strike...
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.
The outline of an agreement emerged today despite warnings yesterday from EU negotiator Michel Barnier pictured in Brussels last week) that no EU trade deal model covers financial services
'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 plan would mean European banks in London - such as Deutsche Bank on Winchester Street, London (pictured) - will not have to set up costly subsidiaries
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.
FAQs
On 1 January 2021, UK financial firms lost blanket access to the EU under the single market passporting regime and became reliant on Brussels granting regulatory equivalence to its financial services sector. The political imperatives of Brexit have made the negotiations exceedingly difficult.
How has Brexit affected the UK financial markets? ›
A key point of the referendum was for the UK to become less reliant on EU trade and open up trading alliances with new countries. However, between 2018 and 2021, there was an 18% decrease in financial services exports to the EU, with only a 4% increase in exports to non-EU countries to offset it.
How has Brexit affected banks? ›
In addition to transferring permissions to EU entities, banks will be required to migrate relevant customer contracts to these entities. This is a significant task but one that is necessary to continue offering the same level of service to clients.
Can I still have a UK bank account after Brexit? ›
I'm a UK citizen living in the EU; will I still be able to keep my HSBC UK Savings Account after Brexit? Yes. Your HSBC UK Savings Account will remain open and you'll still be able use it as you do today. You'll also still be able to access our online services and contact us over the phone.
What does the bank of England say about Brexit? ›
“As a public official, I take no position on Brexit per se,” Bailey said. “That was a decision for the people of the UK.” However, he added: “It has led to a reduction in the openness of the UK economy, though over time new trading relationships around the world should, and I expect will, be established.
Is the UK financially worse off after Brexit? ›
The average Briton was nearly £2,000 worse off in 2023, while the average Londoner was nearly £3,400 worse off last year as a result of Brexit, the report reveals. * It also calculates that there are nearly two million fewer jobs overall in the UK due to Brexit – with almost 300,000 fewer jobs in the capital alone.
What impact has Brexit had on UK trade? ›
On the trade side, after controlling for pandemic-related effects, Brexit appears to have caused a significant decline in EU-UK trade in both directions, which, however, may recover to some extent over time, once UK and EU firms have fully adjusted to the new environment.
What caused the UK banking crisis? ›
This had to do with several factors unique to the UK. The UK had no big manufacturing base, and the economy depended on financial services, real estate, and retail sales for growth. This growth lacked substance as it relied heavily on a risky credit borrowing and lending bubble that finally burst in 2008.
How many bankers left London after Brexit? ›
Dublin, Frankfurt and Paris are vying for a share of the financial services markets once dominated by London.
How has Britain benefited from Brexit? ›
Foreign direct investment
In this view, foreign firms see the UK as a gateway to other EU markets, with the UK economy benefiting from its resulting attractiveness as a location for activity. The UK is certainly a major recipient of FDI.
These actions, not limited to banks but also affecting investment accounts, result from the end of the EU passporting system that allowed UK banks to operate in the EU. Expats affected have options like specific expat bank accounts or transferring investments to non-UK institutions.
Why is Barclays closing accounts for expats? ›
This is typically done to avoid fees, which may apply when such payments are paid into foreign accounts. The decision will also impact some with Barclays loans and cash ISAs. With loans, you will be able to keep the loan and continue making monthly repayments. However, you will not be able to get a new loan in future.
Can I keep my UK bank account if I live abroad? ›
Keep your existing bank account
So, the answer to the question, “can I keep my UK bank account if I move abroad?”, is yes. Keeping your UK bank account open after moving overseas is the first option and there are a couple of reasons why you might choose to do this.
Are British satisfied with Brexit? ›
Share of people who think Brexit was the right or wrong decision 2020-2024. As of May 2024, 55 percent of people in Great Britain thought that it was wrong to leave the European Union, compared with 31 percent who thought it was the right decision.
How has Brexit affected UK banks? ›
Nonetheless, in the banking sector UK-based firms wishing to provide services in the EU were no longer able to do so via passporting, i.e. the right to serve customers across the EU from their home Member State, either through the free provision of (cross-border) services or by establishing local branches under ...
Who owns the money in Bank of England? ›
The UK government owns the Bank of England. The Treasury Solicitor, on behalf of HM Treasury Opens in a new window, holds our entire capital (around £14.6 million). This figure refers to capital under its accounting definition, not our total equity, which includes retained earnings.
How are UK business affected by Brexit? ›
Data from the Tony Blair Institute for Global Change published in 2023 indicated that business investment in the UK is 31% below the pre-referendum trend. Alongside this, businesses are facing more regulatory admin, with import declarations rising, lumping businesses with extra costs.
How Brexit affected the stock market? ›
Before Brexit, when markets had been buoyed by the Scottish referendum vote and the fiscal policies of the coalition government, UK stocks were highly prized. They traded at a premium to global stocks. But as investors shunned the UK market in ever greater numbers after Brexit, that valuable premium disappeared.
What is the impact of Brexit on foreign direct investment in the UK? ›
Leaving the European Union (EU) would reduce flows of foreign direct investment (FDI) into the UK by more than a fifth, damaging productivity and lowering people's incomes.
How did the financial crisis affect the economy in the UK? ›
Impact on the Economy: Rise in the Jobless
So, as more people were out of work, there was a drop in tax revenue. In turn, the government had to slash public spending, so they were unable to boost the economy by investing in public services.
