London's rules obstacle to Chinese bank branches

Stricter regulations could hinder city's ambitions to be RMB hub

Chinese banks are encountering obstacles to their expansion in the City of London as financial regulations there become increasingly strict, a member of the City of London's advisory council for China said on Wednesday.

The tighter regulations will also weaken Britain as an international financial center, said Wang Jianxi, executive vice-president and chief risk officer at China Investment Corp.

Since the financial crisis in 2008, the Financial Services Authority, or FSA, Britain's financial services regulator, has made it difficult for foreign banks to set up branches in the country. It has instead asked them to establish subsidiaries, which, according to the authority's regulations, are ring-fenced within Britain.

"The new regulations have made it very costly for Chinese banks in London," Wang said. "And if London has ring-fence rules (on foreign banks' subsidiaries), I really doubt that Chinese banks will still see a need to have operations here."

Wang warned that excessive financial regulations might hinder London's future as a hub for offshore renminbi trading, especially as Chinese banks move their investment and management teams to other jurisdictions.

Even so, he said current regulations have had little effect on renminbi liquidity in London. By December 2011, London had 109 billion yuan ($17.50 billion) worth of customer and interbank yuan deposits.

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