Bank of England sees Brexit risks to EU bank lending in UK

Brexit poses risks to the ability of British companies to borrow from European banks and to some clearing activity which might have to relocate from London once Britain leaves the EU, the Bank of England said on Tuesday.

Banks from the bloc and other associated countries accounted for around 10 percent of lending to British companies, the BoE's Financial Policy Committee (FPC) said in a summary of its most recent meeting held on Sept. 20. Currently, those banks can operate as branches but they might have to upgrade to fully fledged subsidiaries after Brexit, a process that could take many months.

“The risk of disruption to wholesale UK banking services appeared to be slightly higher than previously thought, given that a number of EEA (European Economic Area) firms branching into the UK were not sufficiently focused on addressing this issue,” the FPC said in a statement.

The BoE's Prudential Regulation Authority was “engaging firms to improve the state of their contingency planning.” PRA Chief Executive Sam Woods told Reuters last week that he expected 130 licence applications from branches.  “Firms would need to start seeking authorisations in 2018 Q1,” the FPC said.

The FPC also said there was a “substantial risk” of disruption to cross-border clearing operations in financial services, such as derivatives used by companies to hedge themselves against potential financial market swings.

The EU has published a draft law that would require clearing of euro-denominated transactions in some cases to be shifted from London to cities in the bloc after Brexit, a proposal resisted by Britain.

The FPC said clearing houses were examining contingency options “including the potential to relocate some clearing activity from the UK in order to continue to provide services to EU clients.”