UK faces unintended consequences of post-Brexit financial regulation

UK faces unintended consequences of post-Brexit financial regulation

A year after Britain left the EU, the UK’s big banks are facing a scenario that was far from the vision of Brexit’s architects: their EU rivals could soon be able to lend more cheaply to British corporates than they can.

The EU’s banks are getting a helping hand because of the bloc’s decision to break with some of the final parts of Basel III, the globally agreed capital rules. This will allow EU banks to use less capital when they make loans to corporates without a credit rating, reducing their lending costs. Before Brexit, the UK’s banks would have benefited from the same relief.

“It’s a big issue,” said a senior executive at a large UK bank. “There’s a risk . . . that BNP can lend to a load of higher quality UK corporates at cheaper rates than UK banks . . . Open markets only work if everybody is playing by global rules.”

Corporate lending is just one of the areas of possible post-Brexit divergence the City of London is watching with trepidation in 2022 as the EU and the UK advance new financial regulations at a pace not seen since the immediate aftermath of the 2007-08 crisis.

Work in progress in both jurisdictions includes fleshing out plans to