Britain to ease rules for branches of Chinese and other non-EU banks

Britain’s central bank set lighter conditions on Wednesday for branches of Chinese and other non-European investment banks as part of efforts to bolster London’s role as a financial centre.

The new rules reverse a previous policy of putting pressure on non-European Union lenders operating branches in Britain to turn those branches into standalone subsidiaries with their own capital and liquidity buffers – a costly undertaking.

The initial target of the new policy is China, but it would apply to lenders from any non-EU country, Andrew Bailey, chief executive of the Bank of England’s regulatory arm, the Prudential Regulation Authority (PRA), said in October.

Britain is hoping the City of London will become a major yuan hub outside China, and the two countries are holding talks about setting up a clearing bank in the British capital for the Chinese currency.

The PRA said in October it proposed allowing foreign banks to operate as more lightly regulated branches as long as they do not take deposits.

That policy followed Britain’s bruising experience with savers losing money when Iceland’s banking system collapsed in 2008 at the height of the financial crisis.

Britain had to compensate local holders of deposits in Icelandic banks and is suing Iceland to get the money back.