Foreign banks face new EU scrutiny
They have to establish holding firms to consolidate activities
8 September, 2017
Nineteen foreign banks operating in the EU will need to set up new holding companies so that regulators can scrutinise them more closely, according to an EU discussion paper seen by Reuters. The Commission proposed already last November that banks headquartered outside the Union should consolidate their EU activities under an “intermediate parent undertaking”, or IPU. The step was made in response to US moves to require foreign banks to set up such companies.
The Commission has now made its proposal more detailed with a preliminary estimate that 19 foreign banks will have to set up an IPU. The banks are Bank of America, Citi, Credit Suisse, Goldman Sachs, JP Morgan, Morgan Stanley, Mitsubishi UFJ Financial Group, UBS, Bank of New York Mellon, Industrial and Commercial Bank of China, State Street, Sumitomo Mitsui Financial Group, Mizuho Financial Group, Wells Fargo, Bank of China Ltd, Agricultural Bank of China Ltd, China Construction Bank Corp, Nomura Holdings, and Royal Bank of Canada. Between them, they operate via 53 subsidiaries and 53 branches, with 35, more than a third of the total, in Britain alone.
With Britain leaving the Union in March 2019, having a “proper framework” for supervising non-EU banking operations is seen as “even more relevant”, according to the discussion paper. Separately, the bloc has already proposed that clearing houses handling large amounts of euro-denominated assets should be jointly supervised by Brussels after Brexit.
Subsidiaries of foreign lenders make up 42% of banking subsidiaries in the bloc, up from 36% in 2008, but EU regulators have only “limited access” to timely data on what goes on across these operations, the document said. “As a consequence, the supervision of subsidiaries that belong to the same third-country group, but operate in different Member States, is fragmented, and hence might result in regulatory and supervisory arbitrage,” the paper states. An IPU would “not necessarily increase capital or liquidity requirements,” it added.
The European Central Bank, which supervises top Eurozone lenders, and the Single Resolution Board, in charge of closing down those lenders if they fail, both want foreign branches, and not just subsidiaries, to come under IPUs.