European Central Bank calls for big increase in regulation for foreign banks that would hit British banks after Brexit

Jasper Jolly
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European Central Bank And Frankfurt Financial District
The Frankfurt-based European Central Bank wants tougher regulation (Source: Getty)

The European Central Bank (ECB) wants large branches of foreign banks to face much tougher regulation if they want to operate in the EU, according to reports.

The ECB document calls for foreign bank branches to be structured as a separate holding company, with its own regulatory capital, according to a leaked proposal seen by Reuters.

This would represent a major change for banks currently using branches of the main, foreign-headquartered company, as opposed to arm’s-length subsidiaries.

Read more: It's official: ECB to make it easier for UK banks to move to EU post-Brexit

Banks are required to hold minimum amounts of regulatory capital in order to enable big losses in the event of a financial crisis. The proposals would mean foreign bank branches based in Europe would in effect have to act like separate banks.

The increase in capital requirements would severely dent the profits of international banks with significant European regulations, including American, Asian as well as British firms after Brexit.

In recent weeks the ECB has made it clear it wants to prevent banks from using back doors to access the Single Market without facing the same level of regulation as EU-based firms.

Read more: Banks, don't game the system after Brexit warns ECB executive

The ECB document said it would bring EU rules into line with equivalent regulations faced by foreign banks in the US.

EU envoys reportedly discussed the document last week, with further discussions due on Friday and Saturday.

Britain and Luxembourg have already protested against the plans, saying they would raise costs and cause massive disruption to banking, according to a separate document seen by Reuters.

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