UK Could Make Overseas Banks Replace Branches With Subsidiaries

Great Britain’s central bank is considering new restrictions on international banks doing business in England.

As the Financial Times reported Tuesday (July 4), the Bank of England (BoE) could force more foreign banks to establish British subsidiaries, rather than branches.

According to the report, citing people with knowledge of the matter, the plan would lower the threshold requiring international banks with corporate businesses in the U.K. to open subsidiaries, using their own liquidity and capital.

It would also allow U.K. regulators to take over failing banks. However, the FT notes the move would likely be unpopular among banks, as setting up a subsidiary in another country is more costly than running a branch.

“The ability to utilize branch structures is an important part of what makes London a successful and connected international financial center,” Giles French, chief executive of the Association of Foreign Banks, told the FT.

French added that changes to threshold standards should be “carefully assessed, so it doesn’t deter international banks from operating in the UK and providing essential liquidity and capital.”

The FT report says the plan is part of a larger review by the BoE of March’s failure of Silicon Valley Bank (SVB). That bank had a subsidiary in the U.K., which was taken over by regulators following its parent company’s collapse and sold to banking giant HSBC. Last month, HSBC rebranded the bank as HSBC Innovation.

James Hickson, founder and CEO at European revenue-based lender Bloom, told PYMNTS at the time that HSBC represented “a good safe-haven for depositors.”

However, he noted that the challenge facing HSBC was making sure “that the culture does not get destroyed in the process and that all the factors that made SVB successful, including its ties to the [venture capital (VC)] community, are not lost.”

Ian Stuart, CEO of HSBC UK Bank, has said HSBC Innovation would retain SVB UK’s startup-friendly focus.

The Bank of England’s proposed changes are happening as regulators in the U.S. are set to impose stricter capital requirements on banks.

The new Basel III Endgame requirements will revise capital rules for banks, and mainly impact the eight biggest lenders in America, those with assets in the range of $100 billion to $250 billion. Smaller banks are expected to be exempt from the new rules.