LONDON (Reuters) - The Japanese Bankers Association (JBA) and the China Banking Association (CBA) have joined forces to challenge proposed European Union regulations aimed at policing possible market risk posed by foreign lenders doing business in the bloc.

FILE PHOTO: A man walks past a signboard of Mitsubishi UFJ Financial Group and MUFG Bank at its headquarters in Tokyo, Japan April 3, 2018. REUTERS/Toru Hanai/File Photo

In a letter to the European Commission seen by Reuters, the JBA and CBA - which represent hundreds of lenders from both Asian economic powerhouses - said a draft proposal to compel foreign banks to bring EU operations under a single holding company threatened the commercial viability of their activities in the region.

The trade bodies, whose members include Japan's largest lender MUFG Bank 8306.T and Industrial and Commercial Bank of China 601398.SS, said that the so-called intermediate parent undertaking (IPU) could trigger "multi million one-off reorganisation costs" and significant ongoing charges.

“...the IPU requirement potentially makes our business model in the EU unsustainable, and could affect our fundamental capabilities to provide financial services to EU clients,” the letter said.

“In short, the IPU proposal makes the EU a less attractive place for us to deploy our capital and do business.”

News of the challenge is the latest headache for the EU as it seeks to step up vigilance of non-European lenders operating within the bloc, as part of efforts to safeguard the region’s economy from another banking crisis.

In February, Reuters reported that Bulgaria, which currently holds the EU presidency, had called for a softening of the proposed rules, saying that the requirement to set up a single holding company should only kick in when a foreign bank has total assets of at least 40 billion euros in the EU.

The initial 2016 proposal established a 30 billion euro ($37.1 billion) threshold and the automatic inclusion of globally systemic banks, which would force 19 large foreign lenders to adapt to the stricter rules.

Besides offering greater insight into the activities of large foreign lenders on European soil, the requirement to set up a single holding company will also align Europe’s regulatory treatment of foreign lenders with that of the United States, which already requires non-U.S. banks to form holding companies.

But while some of its members did have globally systemic bank status, the CBA and JBA argued that none had “significant systemic relevance” to the future security of the EU financial system, and should be subject to a threshold of 50 billion euros instead.

“We suggest the IPU proposal to be amended to apply the requirement in a proportionate manner, i.e. applied only to banks that ...could pose a material threat to the EU in a crisis situation.”

The trade bodies also urged the European Commission to exclude UK assets from the threshold calculation, citing the UK’s planned exit from the EU from March 2019.

The Commission was not immediately available for comment.