11th July 2016

How foreign banks support the UK economy

Written by Simon Hills, Executive Director, Prudential Regulation and Risk

I was delighted to recently chair a conference for the BBA’s foreign bank members, which examined some of the key issues that are at the forefront of our non-UK bank members’ minds.

Of course the BBA is for all banks in the UK and indeed the majority of BBA members are foreign banks. They have a crucial role to play in the London market – which is the world’s largest international financial centre – participating in and providing liquidity to the syndicated loan and project finance markets, the foreign exchange, derivative and Eurobond markets as well as, for a minority of them, the UK retail banking market, particularly as they facilitate the remittance of surplus funds back home to the families of foreign nationals working here.

And foreign banks are important to the broader economy too, providing trade finance to British firms as they export around the world, employing people throughout the UK, not just in London, and contributing substantially to the Exchequer. The banking industry pays or collects more than five per cent of all the UK government’s tax revenues – about £31 billion a year and fully half of that comes from foreign banks operating here – so foreign banks are an important cohort in British banking.

Our conference explored the role of foreign banks operating in the UK in preventing money laundering and financial crime as well as a panel conversation between chief executives from a range of BBA foreign banks members that looked at the opportunities and challenges of leading the UK operations of foreign banks.

As I hoped, they were remarkably positive about the outlook for their bank’s London operations, some of which have been here for well over a century. One thing they all commented on however was the increasing regulatory burden which has required them to employ an ever increasing number of people in the risk and compliance fields, a situation that is complicated by the relative lack of experienced people able to fill those roles.  We also discussed the need for the proportionate application of prudential oversight to foreign banks, taking into account their degree of systemic importance to the UK economy. And we talked about the growth of the UK fintech sector and its ability to work with, not against, banks to make internal processes and customer engagement more effective.

But we did not ignore the elephant in the room – the UK’s relationship with Europe in the wake of last week’s referendum vote.  Our conference’s sponsor – the US headquartered law firm Shearman and Sterling – rapidly and efficiently re-orientated their previously planned presentation to talk about the implications of Brexit and the next steps in what is likely to be a lengthy and complex process as the UK resets it relationship with the European Union. Shearman and Sterling covered the impact on derivatives, choice of English law and enforcement as well as giving a broader overview of issues around passporting and equivalence and the impacts on deposit taking and wholesale lending.

For its part the BBA has reassured bank customers that they will continue to be able to take money out of cash machines, exchange currency and have full access to their banking services. We are also emphasising that a significant amount of contingency planning has already been undertaken and banks have significantly increased their capital and liquidity positions. This has enabled them to face the first big test for the resilience measures put in place since 2007. They weathered the storm well.

The BBA stands ready to work together with Government and regulators to make sure Britain has a great future as it lays the ground for a clear negotiation strategy to maintain mutual broad access rights for the UK and EU member states, with as orderly a transition as possible to minimise the impact on customers, both in the UK and the rest of the EU, and to limit any effect on the economy.

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