UK banks told: Don't try clever schemes to get round Brexit

A key member of Germany's central bank has warned UK-based lenders not to dream up clever tactics to get round restrictions to EU access after Brexit.

Andreas Dombret, a Bundesbank board member, said UK-based banks would probably have to move some operations to the European Union to preserve market access.

He said that strategies designed to avoid moving operations such as "letterbox companies", "fly and drive" banking and "dual hatting" would not be tolerated.

"The prospects for EU market access through the UK look rather dim," he said.

Mr Dombret's remarks come a day after the head of Barclays (LSE: BARC.L - news) told Sky News that London would remain Europe's pre-eminent financial centre even after Britain leaves the EU.

Banks based in the capital look likely to lose "passporting" rights, which enable them to sell services freely across Europe.

Mr Dombret said they should not put great hope in "equivalence" - where the EU recognises that an outside country's regulations are as tough, so allowing some access to firms from there - or a free trade agreement, which could prove difficult to reach.

He said: "I expect London to remain an eminent global financial centre.

"Nevertheless, I also expect a number of UK-based market participants to move at least some business units in order to hedge against all possible outcomes of the negotiations.

"We will not accept any empty shells or 'letterbox companies' where the business effectively continues to be done out of London.

"I urge banks not to spend their time inventing strategies to circumvent these requirements.

"This includes seemingly creative solutions such as 'fly and drive' banking, where bankers fly in daily from London, or 'dual hatting', where transactions are booked on the EU subsidiary but in fact executed in London."

The remarks come days after HSBC confirmed it may have to move 1,000 roles from London to Paris over the next couple of years depending on the outcome of Brexit negotiations.

Swiss bank UBS (LSE: 0QNR.L - news) also recently warned that around 1,000 of its employees in the capital would be affected by the loss of passporting.

On Thursday, Barclays chief executive Jes Staley said that London would remain the principal financial market for Europe.

However, he admitted that the bank might have to make some "tactical shifts" depending on the nature of Brexit.

Mr Staley said Barclays (Swiss: BARC.SW - news) - which has already has staff in rival cities such as Paris, Frankfurt and Milan - said it did not expect any of the staffing changes it makes to be to the detriment of the UK.