If costs are similar to the US experience, US banks that would otherwise be caught by new rules could decide to shut EU subsidiaries and move them to the UK to avoid establishing an EU IHC. Any decision would also be affected by any level of access the City gains to the single market, and future reciprocity arrangements with the EU.
On the negative side, the UK is soon to introduce its own ring-fencing regime, which will require UK banks to establish riskier banking operations ring-fenced in a separate sub-group away from their core operations. On initial consideration, ring-fencing and EU IHCs may be a difficult match, if not irreconcilably different, and this could cause problems for any later EU reciprocity arrangement.
EU IHCs will also be able to hold non-EU entities, so ownership of UK assets could be transferred to new EU IHCs instead, encouraging UK banks to move their headquarters to EU jurisdictions. The increased costs that UK banks will face compared with EU competitors could also make them less competitive.
With so many uncertainties already in play due to the Brexit result, the proposals may indeed never happen; and if they do, perhaps they may be of advantage to the City. Like many things following the referendum, it is a case of wait and see.
Edmund Parker is global head of derivatives and structured products and Mark Compton is a partner in the financial services and regulatory enforcement group at law firm Mayer Brown