Kiev’s Western backers froze about $300 billion in Russian central bank assets after the conflict escalated in 2022. UK banks hold around £8 billion ($10.7 billion). A sharp dispute has emerged between European nations pushing to use the frozen funds as collateral for a ‘reparations loan’ for Kiev and those firmly opposed, citing legal and financial risks. Moscow has condemned any attempt to use its assets as “theft.”

According to the FT, senior UK bankers have also objected to the plan, warning that using the assets to guarantee loans to Ukraine would leave them vulnerable to legal retaliation from Moscow.

“We’re concerned about the legality… the government is setting a new precedent because they have never seized assets in this type of way,” one senior banker said.

“Russia will sue for them.”

“The legal risk is that if Ukraine doesn’t pay back, you need to repossess an asset that the government says is yours but Russia says isn’t,” a banking adviser added.

“The expectation is that this is not a loan but a gift, and banks know they will need to repossess the underlying collateral.”

The bankers warned it would be “a near certain default event” and fear they will be “left out to dry when Russia sues.” UK officials declined to say whether the government would offer them any indemnity.

The UK’s plans for the assets are coordinated with the EU, which holds most of the funds. On Friday, the bloc is due to vote on a move to indefinitely immobilize the share of the assets in its jurisdiction under an emergency legal mechanism that would keep the funds frozen until Russia pays post-conflict reparations to Ukraine.

Analysts say the emergency clause would override objections from countries opposed to using the assets for the ‘reparations loan,’ which EU states are set to vote on next week. Belgium, which holds most of the funds, has fiercely opposed the move. France, Luxembourg, Germany, Italy, Hungary, and Slovakia have also objected to seizing the assets.

Speaking to reporters on Thursday, Zelensky suggested that the territorial dispute with Russia over Donbass – widely considered to be the most serious stumbling block on the way to peace – should be put to a vote.

“The Russians want the whole of Donbass – we don’t accept that. I believe that the Ukrainian people will answer this question. Whether in the form of elections or a referendum, the Ukrainian people must have a say.”

His remarks came as US President Donald Trump urged Zelensky, whose presidential term expired last year, to hold elections. While Zelensky did not reject the request outright, he insisted that an election can only take place if the West provides Kiev with strong security guarantees.

According to Zelensky, the ongoing talks with US officials over a peace deal included proposals to designate parts of Donbass as a “free economic zone,” adding that Moscow prefers the phrase “demilitarized zone.”

“The Americans are searching for an appropriate format,” the Ukrainian leader continued.

Trump has expressed frustration over the slow progress towards a deal, suggesting that Zelensky is standing in the way.

“I thought we were very close with Ukraine to having a deal. In fact, other than President Zelensky, his people loved the concept of the deal,” he stated, while acknowledging that reaching an agreement is “a little bit complicated because you’re cutting up land in a certain way.”

The initial US roadmap to peace leaked to the media last month reportedly called for Ukraine to relinquish the parts of Donbass it still controls, freeze the front lines in Russia’s Kherson and Zaporozhye Regions, stay out of NATO, and limit the size of its armed forces, in return for security guarantees.

Moscow maintains that a sustainable peace can only be reached if Ukraine withdraws completely from the new Russian territories, and commits to neutrality, demilitarization, and denazification.