Osborne's Chinese bank concessions prompt check on British finance rules

UK Chancellor's bid to draw more Chinese trade to London questioned

PUBLISHED : Thursday, 17 October, 2013, 9:29am
UPDATED : Thursday, 17 October, 2013, 12:20pm

This week’s surprise decision by George Osborne to allow Chinese banks to set up more easily in the UK is being questioned by the Treasury select committee of MPs.

Andrew Tyrie, chairman of the committee, is seeking assurances that the finance minister did not put too much pressure on the financial sector’s regulatory bodies to relax rules to entice Chinese investment banking businesses to set up in London.

The Conservative MP has written to Andrew Bailey, chief executive of Prudential Regulation Authority, to find out if he was consulted about allowing Chinese banks to operate as branches in the UK rather than as subsidiaries - the latter option bringing tougher oversight by the regulator.

Osborne announced the plans this week during two days of talks with his Chinese counterpart, the vice-premier Ma Kai, as part of his goal of attracting more trading of the renminbi in London, already the destination of 41 per cent of global currency trading.

The report by the parliamentary commission on banking standards, chaired by Tyrie but now disbanded, had noted that some Chinese banks were moving away from the UK to Luxembourg because of a refusal by the regulators to allow them to set up as branches in the UK.

Branches are treated as extensions of the overseas bank. The alternative is to form a subsidiary and meet tough standards on capital and liquidity. Bank of China already operates a branch in the UK.

Tyrie said in the letter to Bailey, which he also copied to the finance minister: “I would be grateful for your assurance that the PRA was consulted about this announcement, is content with the arrangement that was proposed, and in particular does not have concerns on prudential grounds.

“Clarity is needed about whether conditions have been attached and whether such conditions constitute a change in policy. I would be grateful for an assurance that any change is not specific to a particular country and that you were not put under any due pressure to agree to something about which you may have had concerns.”

The cross-party commission, set up in the wake of the Libor rigging scandal, also recommended that the Bank of England governor be given a statutory power to reveal if lobbying to seek rule changes has occurred - although the government did not adopt this proposal.

Neither the PRA nor the Treasury would comment immediately on Tyrie’s letter.