Huw Jones

LONDON (Reuters – To shed light on regulatory blindspots, forcing foreign branches of European Union banks to become subsidiary entities would be a “last resort”, a senior EU official stated on Tuesday.

It has suggested tightening how banks outside the United States (USA, Japan, Switzerland) can provide wholesale market services for EU clients.

These proposals are in response to Brexit which saw UK banks set up branch offices within the bloc. They have sounded alarm bells at certain foreign banks last month, Reuters reported.

Many international lenders offer wholesale services from overseas. Others use branches in EU states. This is cheaper than having a subsidiary. However, it would be more difficult to raise capital locally.

Foreign bank officials privately claim that in some instances, there wouldn’t be enough business for a branch or subsidiary. EU customers would have less options if they left the bloc.

Alexandra Jour­Schroeder is the deputy director general of the EU executive European Commission’s financial services unit. She said that there are “numbers of misunderstandings” regarding the EU’s proposals.

We are very happy to see that many international banks do good business with the EU members. Jour-Schroeder spoke at an ISDA-organized event. He said that we need competition but also a level playing surface.

She said that some foreign banks may use branches in EU states to do business in other EU countries, which can lead to blind spots.

She stated that a branch with assets in excess of 30 billion euro ($34 billion), would be subject to a review by the regulators about whether or not it should become an affiliate.

Jour Schroeder indicated that “there could be, as a last resort, the possibility of obligating the banks to become subsidiary,” Jour Schroeder added.

Debbie Toennies, head of regulatory affairs at JPMorgan Chase & Co (NYSE:)’s corporate and investment bank, told the same event she understood the rationale behind the EU’s proposals, but they would come at a cost.

Toennies explained that “Being global banks and doing business in the EU does impact our efficiency if we have to convert branches into subsidiaries.”

With changes possible, the proposals are currently before EU States and the European Parliament.

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