Bank of England sees Brexit risks to EU bank lending in UK and clearing

(Adds more detail)

By Huw Jones and William Schomberg

LONDON, Oct (Shenzhen: 000069.SZ - news) 3 (Reuters) - Brexit poses risks to the ability

of British companies to borrow from European banks and to some

clearing activity which might have to relocate from London once

Britain leaves the EU, the Bank of England said on Tuesday.

Banks from the bloc and other associated countries accounted

for around 10 percent of lending to British companies, the BoE (Shenzhen: 000725.SZ - news) 's

Financial Policy Committee (FPC) said in a summary of its most

recent meeting held on Sept. 20.

Currently, those banks can operate as branches but they

might have to upgrade to fully fledged subsidiaries after

Brexit, a process that could take many months.

"The risk of disruption to wholesale UK banking services

appeared to be slightly higher than previously thought, given

that a number of EEA (European Economic Area) firms branching

into the UK were not sufficiently focused on addressing this

issue," the FPC said in a statement.

The BoE's Prudential Regulation Authority was "engaging

firms to improve the state of their contingency planning."

PRA Chief Executive Sam Woods told Reuters last week that he

expected 130 licence applications from branches.

"Firms would need to start seeking authorisations in 2018

Q1," the FPC said.

The FPC also said there was a "substantial risk" of

disruption to cross-border clearing operations in financial

services, such as derivatives used by companies to hedge

themselves against potential financial market swings.

The EU has published a draft law that would require clearing

of euro-denominated transactions in some cases to be shifted

from London to cities in the bloc after Brexit, a proposal

resisted by Britain.

The FPC said clearing houses were examining contingency

options "including the potential to relocate some clearing

activity from the UK in order to continue to provide services to

EU clients."

But this option was not available in segments of the market

"where the complexity and cost of any migration was

significant".

"In the event of access restrictions to those markets, EU

firms would therefore have to move their activity to another CCP

(clearing house), which was likely to be difficult to achieve

before the point of EU withdrawal," the FPC said.

LCH, a unit of the London Stock Exchange (Other OTC: LDNXF - news) and which

dominates clearing in euro-denominated swaps, said it could not

comment on any contingency plans.

Banks have said it would be costly and cumbersome to shift

their derivatives positions to LCH's Paris unit or to another

clearer like Eurex in Frankfurt.

(Reporting by Huw Jones and William Schomberg; Editing by

Catherine Evans)