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Markets Regulation
UK set to license Chinese bank branch
From the Financial Times of Fri, 05 Sep 2014 18:12:01 GMT

Britain is preparing to grant the first new licence allowing a Chinese bank to operate a branch in the UK, in a bid to boost the City’s share of fast-growing Asian financial business.

ICBC, China’s biggest lender, is expected to be granted permission to operate a branch in London next week, following months of dialogue between UK and Chinese regulators, according to two people familiar with the matter.

The move comes after rival China Construction Bank was designated as a clearing bank in London for the Chinese currency.

George Osborne, the UK chancellor, has been eager to have Chinese bank branches set up in London, as he seeks to strengthen the City’s status as a hub for renminbi business.

He is due to meet China’s vice-premier Ma Kai next week in the latest round of China-UK economic talks in Britain. “When ministers meet each other, announcements need to be made,” said one senior finance executive.

A decision by the Bank of England’s Prudential Regulation Authority to grant a branch licence has been expected, after complaints by Chinese banks that UK regulations make it hard for them to expand – by requiring that they operate as tightly supervised subsidiaries.

If Chinese banks are permitted to operate as branches instead, they are better able to tap the vast resources of their home lenders, and will be largely supervised by officials in Beijing.

On Friday, the PRA put in place a key plank of its revised regime for supervising international banks, following a consultation launched in February. This introduces a rule requiring the banks to have clear plans on how to safely deal with failing UK branches.

The new rules will make it easier for foreign banks that want to operate as wholesale entities to open branches in London, provided they have little retail presence.

Last October, on a trip to Beijing, Mr Osborne said that Chinese banks would be able to apply to establish wholesale branches in the UK, allowing them to “significantly scale up their activity” in Britain.

ICBC has been seen in the City as a leading candidate to win a new branch licence. In its most recent annual report, the bank said that the granting of a branch licence would allow it to make a “significantly greater contribution to Chinese-British trade in future”.

The BoE declined to comment. ICBC did not respond to requests for comment.

In June, China Construction Bank – another state-owned lender – confirmed that it was also seeking to establish a branch in the UK. Bank of China already has a longstanding branch in the UK capital.

Until now, British regulators have been reluctant to grant licences allowing overseas institutions to run large-scale UK operations without close local supervision – over fears of importing banking crises.

The PRA has now put its revised policy on international banks on to a formalised footing, by setting out its approach to supervising branches in a 12-page statement.

It stressed that arrangements for the resolution of a struggling bank would be a “key deciding factor” in the PRA’s licensing of foreign-owned branches.

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