Foreign banks that have branches located in the City of London may be expelled from operating due to their persistent breach of banking regulations, the Bank of England has emphatically identified.
The Prudential Regulation Authority, who serves in an advisory role to over 1,500 banks and building societies across the UK, unveiled a number of new conditions that non-EU banks must adhere to if they desire to keep operating and having branches present across the country.
The most significant new regulation that has been unveiled by the PRA is that foreign regulators will have to monitor and penalise non-EU banks in accordance with British policy on the industry, or else risk having all their branches shut down and removed from operation across London and the UK.
The issue of implementing consistent regulations for both EU and Non-EU banks in the capital has been highly debated in recent times; with foreign firms that have overseas branches currently not being required to adhere to the same regulatory standards as European subsidiaries across the UK.
Major debating points have been whether foreign subsidiaries should be capitalised in a detached manner from their main bank and whether they should be required to give the PRA regular financial data so that they can make accurate forecasts about the impact of their alternate policy on UK banks.
An example of the importance of the new regulation was highlighted by the PRA, who cited the British intervention with Icelandic Banks during the recession when their deposit-gathering policies failed and their customers savings accounts had to be externally guaranteed by UK regulators.
The PRA said that the new rules will see foreign banks having to consistently transfer data about their conduct to them directly, so that they can determine whether they could potentially harm the British banking system. Furthermore, they will also have to produce contingency plans that will be implemented in the event that something damaging is incurred from their policy on the UK banking sector.
And contentiously, the PRA have cited that a necessary penalty to instigate in the event that foreign banks to not adhere to these new regulations is cancelling their operating licences, or temporarily preventing them from running until that time that they bring their conduct in line with UK regulation.
This was clearly identified in the PRAís press release, which cited: ìFirms must always be in compliance with the PRAís threshold conditions, so if the assessment of the equivalence of a Home State Supervisor changes, the firm can have its permission varied or cancelled.î
The news comes at a time when Chancellor George Osborne has embarked on a period of courting the Chinese, in a bid to attract some of the Asian giantís biggest financial organisations into investing and setting up business in the Capital. It is widely believed that the government has huge ambitions for London moving forward in the future and intend to turn it into a business hub and trading centre of the world,
The new regulations are likely a calculated solution to ensuring that the British banking sector is protected and prepared for the forecasted influx of foreign investment, though the Chancellor did indicate last Autumn that he would make the regulations looser for Chinese firms so that the government can realise its aim of transforming the capital into a trading centre later on down the line.
ëImportant we get the right balanceí
The Bank of England owned PRA was set up back in 2013, alongside the Financial Conduct Authority, as the devolved successors of the Financial Services Authority. The regulatory body has two primary statutory functions that consist of ensuring the banking sector remains stable and secure whilst simultaneously making sure that all policy holders are given the protection they require when engaging with insurance firms.
The PRA plays a fundamental role for ensuring a stable finance market in the country, and consistently monitor the complexion of the industry in order to ascertain any current or future risks that may arise. The companyís avocation of a radical change to the current framework that non-EU banks operate in a clear sign that they believe that regulation manipulation on the part of foreign finance firms is having a damaging affect on the security of the sector as a whole.
This stance was highlighted by Andrew Bailey, the chief executive of the PRA, who denied that the changes were inherently hostile to the future of foreign banks in Britain, and argued that they are necessary in order to ensure a safer and securer banking sector moving forward in the future.
ìIt 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,î he said.