HMRC is consulting on the territorial scope of the Bank Levy and possible responses to new regulatory rules for high quality liquid assets.
The Summer Budget announced that the territorial scope of the Bank Levy would be restricted to UK operations from 1 January 2021. This represented a significant change from the current approach, which broadly requires banking groups to pay the Levy in relation to any entities which sit under the UK as well as UK operations. The Government is now consulting on the detailed implementation of the changes, with a view to legislating in Finance Bill 2017.
Although popularly perceived as a move to placate the large UK headquartered banking groups particularly penalised by the existing rules, the consultation sets out the Government’s position that the changes instead result from an evolving regulatory environment which has reduced the UK’s exposure from failures in the non-UK subsidiaries of UK banking groups. The Government does not believe there has been a similar reduction in the risk attributable to overseas branches of UK banks, and so it is currently proposed that, unlike overseas subsidiaries, these should remain within the scope of the Levy.
On a similar basis it is proposed that the Levy should apply to those liabilities of UK companies which fund overseas subsidiaries, possibly subject to a targeted exclusion for forms of loss-absorbing capital not significantly increasing UK risk. In particular, the consultation proposes an amendment to exclude from the Levy Tier 1 capital funding equivalent investments in subsidiaries.
The opportunity is also being taken to consult on possible changes to the relief given for high quality liquid assets. This relief currently refers to regulatory definitions which have now been superseded. The Government is broadly seeking to preserve the scope and cost of the existing relief and is therefore consulting on the best way to achieve this within the new regulatory regime. Any changes should be implemented by secondary legislation in 2016.
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