Volkswagen Financial Services (VWFS) is contemplating applying for a UK banking license as it seeks to diversify its funding source.

The lender said this was one of ‘a number of options’ it is considering.

As part of the process, it said it was in discussions with the PRA, which may subsequently lead to VWFS making a formal application for a UK banking licence.

As well as increase funding sources, the company said a UK banking license would protect against post-Brexit regulatory risk: VWFS currently uses its German bank license to provide its service in many EU states, including the UK, without needed further authorisation.

With Brexit talks currently under a shroud of mystery, there is a chance the UK may no longer be covered by the EU’s bank passporting system in the future.

David Maloney, chief executive officer of VWFS said:  “As the largest provider of car finance in the UK, our funding costs are managed prudently through the continued review of sources of funding. As with many companies with European wide business interests, such reviews must also take into account the potential impact of the UK’s decision to leave the European Union.

“Discussions with the UK regulators, in particular the PRA, may result in VWFS making an application for a UK banking licence. Should we pursue this path and establish a UK regulated retail bank, it would diversify our funding sources whilst helping to alleviate post-Brexit uncertainty and ensure we continue to provide lending products that generate satisfied and loyal customers and support balanced growth.”

Gaining a banking license would see VWFS join Ford Credit Europe (FCE), which also has a UK banking license. FCE last week warned about some of the struggles it may face if the UK were to lose access to the single market.