UK proposes tougher rules for non-EU banks

The Bank of England has set out tougher proposals for non-EU banks to try to prevent a repeat of the 2008 financial crisis. Non-EU banks taking deposits have to set up subsidiaries in the UK and face stricter rules. These would then be directly regulated by the UK's Prudential Regulatory Authority (PRA).

Those not taking deposits from the public would be classified as branches, and benefit from lighter touch rules.

The Bank is hoping many Chinese banks will use the branch system and that the City of London will become a major hub for trading the yuan currency outside China.

The Bank put the proposals out to public consultation on Wednesday.

"We are much more comfortable if branches from overseas conduct wholesale business, that is things like trade finance," said Deputy governor of the PRA, Andrew Bailey.

"We are much less comfortable if they take deposits from the retail market in the UK and that is born out of difficult experiences we had in the height of the crisis," he said.

Britain had to compensate deposit holders in the UK when they lost money deposited in Iceland's banking system, which collapsed in 2008 at the height of the financial crisis. The UK government is suing Iceland to get the money back.

Bank rules on branches would still mean they would have to have an equally strict home supervisor, and prove they could, in a crisis, be wound up quickly with minimum impact on the UK financial system.

Bailey said it would deter some banks from entering the UK market.

- BBC