London's rules obstacle to Chinese bank branches (2)

Chinese banks in London have expressed concerns about the city's efforts to impose increasingly strict capital requirements on banks.

In October, the Financial Times reported that Chinese banks expressed frustration over such matters in a letter sent by the Association of Foreign Banks to Britain's Treasury.

Their main complaint concerned the FSA's refusal to let them open branches, which are offshore arms of foreign banks that the authority has little control over. Subsidiaries, in contrast, are subject to the strict capital requirements that apply to Britain's local banks.

The letter stated that Chinese banks were transferring their investment into other jurisdictions, such as Luxembourg, where the Bank of China Ltd and the Industrial and Commercial Bank of China Ltd have been allowed to open branches.

"London regulators are worried about foreign banks setting up branches because (such institutions) are not locally incorporated and hence have no capital requirements," Wang said.

"Therefore, they want foreign banks to set up a locally incorporated subsidiary that follows local rules."

Bank of China first expanded into Britain in 1929 by establishing an agency office there, and a branch followed in 1946. The bank didn't have to set up a British subsidiary until 2007, when it was asked to do so by the FSA.

Although Bank of China has kept its branch, other Chinese banks that have recently moved into London, including Industrial and Commercial Bank of China, China Construction Bank Corp and Agricultural Bank of China Ltd, have not had the opportunity to open one.

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