The Bank of England will allow European banks to continue operating without creating expensive subsidiaries after Brexit, the BBC reported, the opening gambit in a tussle with the EU over London’s position as a top global financial hub.

The BoE’s decision, if confirmed, would mean European banks offering wholesale services would not face new hurdles to operating in London after Britain leaves the European Union in March 2019.

A BoE spokesman declined to comment on the report ahead of the publication at 1300 GMT of the central bank’s approach to future supervision of foreign banks, insurers and clearing houses.

By allowing EU banks to function as normal, the BoE’s announcement represents the first salvo in an expected struggle with the EU over banking rules that will decide the fate of London’s lucrative financial centre for decades to come.

The central bank’s proposal indicates a much softer British position than that of the EU, which insists London-based banks will lose access to EU banking markets after Brexit and wants to pull some key banking business back.

London vies with New York for the title of the world’s financial capital, dominates the $5.1-trillion-a-day global foreign exchange market and is home to more banks than any other centre.

But many other EU capitals see London’s Brexit tumult as an opportunity to grab new business.

Countries such as France, Germany and Ireland are wooing banks based in London to move operations to them after Brexit.

Earlier this year, BoE Governor Mark Carney called for Britain and the EU to recognise each others’ bank rules after Brexit, or risk a potentially damaging hit to financial services across Europe where many companies depend on London for funding.

BREXIT BANKING

The EU’s top Brexit negotiator Michel Barnier this week reiterated his stance that London stands to lose access to the EU banking market if it sticks to its plan to impose new controls on migration, one of the conditions for membership of the single market.

The EU has already proposed that clearing of euro-denominated derivatives, which are done mainly in London, could move to the euro zone after Brexit, if there is no comprehensive Brexit deal between EU and UK regulators.

The tough EU line on banking is extremely sensitive for the United Kingdom which collects over 70 billion pounds ($94 billion) a year in tax from the financial services sector.

So far, British Prime Minister Theresa May has largely conceded to the EU on the structure, timetable and substance of the negotiations.

A later version of the BBC story removed a reference to the BoE proposing that EU banks would be allowed to operate as usual even if no divorce deal was struck between London and Brussels.

The BoE’s proposal indicates both Britain’s concern to preserve London as by far the biggest global banking centre in its time zone but also worry about the potential regulation that the EU could impose on banks after Brexit.

CITY OF LONDON HAPPY

May has said Britain will leave the EU’s single market, raising questions about how companies in Britain will do business in the bloc after Brexit, and how European companies can operate in Britain.

The City of London welcomed the BoE’s move.

“Allowing European wholesale banks to operate as normal in the UK after March 2019 is a welcome bit of news to end the year for the City,” said Catherine McGuinness, the head of the City of London Corporation.

The BoE move could also be a gesture of goodwill aimed at softening European Commission plans, due to be published on Wednesday, to stiffen the rules for non-EU investment banks which operate inside the bloc.

Many of those banks, like Goldman Sachs and Morgan Stanley have their main European operations in London at present, though they are making plans to move some operations to EU centres.

The BoE has said around 10,000 financial services jobs are likely to move out of the U.K. immediately after Brexit in March 2019. Bankers say more may follow in the years ahead.

More than 100 banks operating in London are branches of lenders headquartered elsewhere in the EU. Currently, they operate in Britain under EU “passporting” rules which are due to expire when Britain leaves the bloc in March 2019.

The BoE had previously said it would let banks know before the end of the year whether these branches must reapply for branch licences to operate after Brexit, or would need to be turned into subsidiaries, an option Boston Consulting Group has said could cost banks up to 40 billion euros.

Switching from being a branch to a subsidiary means having to build up buffers of capital and cash locally, and come under the direct supervision of the Bank of England.

EU retail banks that hold UK customer deposits above a certain threshold would have to become subsidiaries, the BoE has already said.

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