Loss of Chinese banks will dent London's ambitions
Donald Gasper says the city is putting its global role at risk with moves to tighten regulation
Britain's Financial Services Authority has this week tightened its controls on overseas banks seeking to take deposits in London. Instead of allowing them to open branches, the watchdog is trying to pressure them to set up subsidiaries that are locally regulated but have their own access to capital and cash. However, this move, in co-ordination with similar measures by the US Federal Reserve, could backfire for the British capital's highly vaunted status as an international financial centre.
A letter sent by the Association of Foreign Banks to the UK Treasury on behalf of Chinese banks this year complained about what they regarded as excessively demanding liquidity requirements and said the banks were finding it increasingly difficult to operate in Britain.
Since the financial crisis in 2008, major Chinese banks have emerged as the world's biggest by market value. Several have set up offices in London.
However, the drive to tighten regulation is pushing them to consider transferring business, and management of their European operations, away from London, according to the letter. It disclosed that one bank already channelled three times more business through Luxembourg than London.
While US banks are permitted to have scores of branches in Britain, the British authorities have turned down the application from four Chinese banks to convert their offices into branches. By contrast, Luxembourg has allowed the Bank of China and the Industrial and Commercial Bank of China to establish fully fledged branches. The letter from the Association of Foreign Banks said these branches "will be used to build up a network of European branches that would almost certainly have previously been run out of London".
All this could put an end to London's dreams of becoming the European centre for Chinese banking.
