Deutsche Bank has scaled up plans to shift hundreds of billions of assets from London to Frankfurt after coming under increasing pressure from European regulators over the size and complexity of its UK operations after Brexit.Deutsche could eventually move about three-quarters of its estimated € 600bn balance sheet back home.

Any transfer of the German bank’s assets — equivalent to almost half the total held by European lenders in the UK — would be a big blow to the City of London, which has seen overseas banks move operations to mainland Europe amid the uncertainty of Britain leaving the EU.

The European Central Bank, the chief watchdog of the eurozone’s largest lenders, has insisted that Deutsche bulk up its capital and liquidity in Germany to comply with rules for branches in a “third country”, which the UK will become when it leaves the EU in March. The supervisor’s demands are becoming so onerous that it is increasingly likely that Deutsche will transform its UK arm into a ringfenced subsidiary after Brexit, say people familiar with the thinking of the bank’s executives.

The initial impact on Deutsche’s headcount in London should be modest, but there are more serious long-term implications of the flight of capital from the City, such as the ECB gaining more regulatory control of banks.Deutsche Bank and the ECB declined to comment.

While no final decision has been made on the size of the asset move, Deutsche has already started shrinking its UK activities.

Almost half the bank’s euro clearing activities have been shifted to Frankfurt, the Financial Times reported in July, and it is setting up a new booking centre to handle European trades that were booked in London.One option being considered is to radically shrink the size of the London balance sheet so it ends up smaller than its US holding company, which has roughly $145bn of assets, according to one senior manager familiar with the bank’s Brexit contingency planning. Deutsche has a further $189bn of assets in its New York branch.

While the bank does not disclose the size of its UK balance sheet, analysts at Autonomous estimated it was about € 600bn in 2016. Deutsche has already earmarked more than a quarter of its UK assets for transfer, mainly related to servicing its EU clients, one of the people said.

Any large-scale transfer of assets would not happen overnight, but would take between three and five years or even longer, the people said. Christian Sewing, Deutsche’s chief executive who has been trying to reassure the bank’s 8,000-plus London staff since taking over in April, has promised to keep a “significant” presence in the capital after Brexit.

The ECB’s main concern is that too many of Deutsche’s global investment banking operations would remain in the UK after Brexit without sufficient oversight from either European or British regulators, the people said. Officials would be more assured by a subsidiary structure because it would ensure closer adherence to local rules, as well as providing better corporate governance, for example by a new independent board.

ECB supervisors have told Deutsche’s top executives that a UK branch should be limited to serving corporates and retail customers in the host country, rather than exporting investment banking services across the globe, one of the people said.

The central bank has in the past expressed concern that banks will use third-country branches to take advantage of laxer supervision in some jurisdictions.The ECB’s tough stance towards Deutsche contrasts with that of the Bank of England, which said in December it would not force any of the 77 European investment banks with operations in London to set up subsidiaries. However, it did warn those with balance sheets over £15bn that if there was a divergence in UK and EU regulatory co-operation, this stance could change.