Chinese Banks Fleeing London to Escape Tough Regulations: Report

China's major state-owned banks are shifting their European operations from London to Luxembourg in a bid to get away from the tougher rules in the City, reported the Financial Times.

The banks are reported to have complained in a letter to the UK Treasury that the uneven regulations and "rigorously demanding" liquidity rules have prompted them to move out.

"They are finding it increasingly difficult to operate in the UK under the current regulatory environment," read the letter, written by the Association of Foreign Banks, on behalf of the banks, reported FT.

Chinese government backed banks such as the Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Agricultural Bank of China (ABC) had expanded to London since the early days of the financial crisis.

The letter said that one bank had already started doing three times more business through Luxemburg than London, FT added. A number of other banks are planning to follow suit, considering the easier regulations in the country.

A major issue for the Chinese financial institutions is the restrictions on setting up new branches in London. The Financial Services Authority (FSA), which declined to respond to FT on the issue, had permitted lesser branches since 2008.

Chinese banks function in the UK through subsidiaries, which fall into the regulations set up for local banks, with strong measures on transparency. On the other hand, FSA enjoys only limited authority over the branches which are extended divisions of the overseas firms.

The letter said that CCB, ICBC, Bank of Communications and ABC had wanted to open branches in London, but were allowed only subsidiaries. On the other hand, Bank of China and ICBC were permitted to open branches and subsidiaries in Luxembourg.

The presence in Luxembourg "will be used to build up a network of European branches that would almost certainly have previously been run out of London," FT quoted from the letter.