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The U.K. Will Make Concessions to EU Banks to Keep Them in London After Brexit

The Bank of England will allow European banks to continue selling their services in the United Kingdom without having to create expensive subsidiaries after Britain leaves the EU, the BBC reported on Wednesday.

The decision, if confirmed, would mean European banks offering wholesale services would not face new post-Brexit hurdles to operating in London, which vies with New York for the title of the world’s financial capital.

A BoE spokesman declined to comment on the report. The central bank is due to publish its approach to future supervision of foreign banks, insurers and clearing houses at 0800 Eastern Time.

Financial services are Britain’s single biggest tax-earning sector, bringing over 70 billion pounds ($93 billion) a year into government coffers. If foreign banks began leaving, the City’s fabric would begin to unravel, industry officials have said.

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The EU has proposed that, as a last resort, clearing of euro- denominated derivatives done mainly in London should move to the Eurozone after Brexit.

By allowing branches of EU banks in London to be supervised by their home regulator, Britain will be hoping the bloc would in return allow euro clearing – and thus thousands of trading-related jobs – to remain in Britain.

The U.K. gesture could also soften EU Commission plans, due to be published later on Wednesday, to stiffen the conditions for letting investment banks from outside the EU operate in its market. Many of those banks, like Goldman Sachs and Morgan Stanley, have their main European operations in London at present, although Goldman’s CEO Lloyd Blankfein has warned in a series of tweets that the bank could relocate large parts of its business to the continent if London loses its access to the EU market.

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“The crucial thing here is to reassure EU banks that they can operate as they can now,” said Matt Hancock, minister for digital, later told the BBC.

Asked if UK banks can retain financial passporting rights, Hancock added, “I’m confident we can get a good deal on it.”

The BBC quoted unidentified government and industry sources as saying they supported the decision.

It’s not clear whether the BoE’s offer would still be valid if the U.K. leaves the EU without a formal deal on mutual market access. The BBC originally reported that it would, but removed that detail in a later version of its story.

More than 100 banks operating in London are branches of lenders headquartered elsewhere in the EU. Currently, they operate in Britain under EU “passporting” rules which are due to expire when Britain leaves the bloc in March 2019.

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The BoE had previously said it would let banks know before the end of the year whether these branches must reapply for branch licences to operate after Brexit, or would need to be turned into subsidiaries, an option Boston Consulting Group has said could cost banks up to 40 billion euros.

Switching from being a branch to a subsidiary means having to build up buffers of capital and cash locally, and come under the direct supervision of the Bank of England.

EU retail banks that hold UK customer deposits above a certain threshold would have to become subsidiaries, the BoE has already said.

British Prime Minister Theresa May has said Britain will leave the EU’s single market, raising questions about how companies in Britain will do business in the bloc after Brexit, and how European companies can operate in Britain.