The Bank of England has warned that foreign banks with branches in Britain could be barred from operating in the City, due to concerns over their poor regulation.
In a consultation paper published today, the Prudential Regulation Authority (PRA) has detailed a series of requirements for non-EU banks operating in the UK.
Failure to meet British standards of oversight could lead to banks from some countries being banned from operating in the UK and the City.
Under the current system, branches set up by overseas banks can sidestep British regulations which full subsidiaries are required to meet.
According to the Telegraph, non-UK bank branches based in Britain manage assets worth about £2.4 trillion, or roughly 160% of the UK’s GDP.
Under the new rules, foreign banks with branches in the UK will have to provide the PRA with detailed financial information that will allow the regulator to assess the impact on Britain should the bank get into difficulties.
In its paper, the PRA said: “Firms must always be in compliance with the PRA’s threshold conditions, so if the assessment of the equivalence of a HSS [Home State Supervisor] changes, the firm can have its permission varied or cancelled.”
Andrew Bailey, chief executive of the PRA said: “It is important that we get right the balance between maintaining our place as an open financial market while delivering our statutory objective of promoting safety and soundness in the firms we supervise. This is crucial for the stability of the UK financial system.”