Bank says not enough preparations being made by EU companies to keep operating in UK after it leaves bloc in March 2019

This article is more than 2 years old

This article is more than 2 years old

The Bank of England has warned that lending to businesses could dry up after Brexit because not enough preparations are being made by companies in the EU to keep operating in the UK after March 2019.

Companies from European Economic Area countries – EU member states, Iceland, Liechtenstein and Norway – provide about 10% of lending to UK businesses and would need to reapply for authorisation to operate in Britain after it leaves the EU.

In its latest update on potential risks to financial stability, the Bank of England said: “The risk of disruption to wholesale UK banking services appeared to be slightly higher than previously thought, given that a number of EEA firms branching into the UK were not sufficiently focused on addressing this issue.

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“Firms would need to start seeking authorisations in [the first quarter of] 2018. Their plans were also reliant on a greater degree of cooperation between the UK and EU.”

The Bank said its financial services regulatory body, the Prudential Regulation Authority, was working with companies to “improve the state of their contingency planning”.

A year ago, the Financial Conduct Authority released data showing just over 8,000 companies, including banks, which were authorised in other EU countries, rely on a “passport” to operate in the UK.

In the banking sector, for instance, about 70 companies operate this way, and Sam Woods, the Bank of England deputy governor responsible for regulation, has previously warned of the burden that would be placed on the regulator if it had to authorise EU businesses that could no longer rely on passports to operate in the UK.

In an interview with Reuters last week, Woods said he expected 130 financial companies from across Europe to apply for licences to continue operating in the UK after Brexit.

The Bank’s financial policy committee, set up after the 2008 crisis, said there were “significant risks” from disruption to the way trades are conducted through clearing houses after Brexit.

The latest record of the FPC’s quarterly meeting published text redacted from an update in March, when it had been discussing reforms to Libor, the London interbank offered rate.

At the time, the committee was concerned about the financial stability risk posed by the market’s reliance on Libor, which is used to price $350tn (£264tn) of financial products around the world.

It was proving difficult to get accurate prices because not enough activity was taking place to set the rate, since changes were made to the way it is calculated after Libor was found to have been rigged.

The notes were released after Andrew Bailey, the FCA chief executive, spelled out in July how Libor would be phased out over the next four years.