The UK must have the freedom to adopt tougher regulation of the financial services industry than the EU after Brexit, the Bank of England governor said on Tuesday.
He also said that if the UK and EU failed to reach a Brexit deal, it would have “big economic consequences”, including – because this scenario would be treated by the BoE as a “material event” – for considering the path of interest rates.
Mark Carney told MPs that Britain frequently had higher standards for the sector than the rest of the EU and, as the BoE must regulate the "most complex financial system in the world", it needed to retain that power.
Proposals
His comments come after the government last week published a white paper on the UK’s post-Brexit relationship with the EU, including proposals for Britain to have greater flexibility on regulation of the financial services industry, but less market access to the bloc.
The City of London Corporation, the local authority that oversees London’s financial district, and TheCityUK, which represents the financial services sector, both criticised the document.
The government dropped previous proposals for a post-Brexit financial services regulation plan based on a concept dubbed “mutual recognition”, where the UK and EU would recognise each other’s rules covering banks, fund management groups and insurance companies.
Instead, the white paper outlined proposals for a super-charged version of the EU’s existing “equivalence” regime, under which the UK and the bloc would have different industry rule books that nevertheless lead to the same outcomes.
Mr Carney told the commons treasury select committee that the government’s negotiating stance was “more consistent with the flexibility to have tougher standards if we need to” rather than “cutting and pasting rules from Europe”.
He said it was “hugely important” to be able to adjust rules aimed at addressing risks to financial stability.
MPs tried to push Mr Carney into criticising the white paper for not asking the EU for post-Brexit financial services regulation based on the mutual recognition concept.
Regulation
But he said he had not used the term “mutual recognition”, noting that the white paper had referenced “equivalence of outcome”.
The Financial Times reported in May that the Treasury and BoE were at loggerheads over the appropriate form of regulation of financial services after Brexit, although both the department and the central bank denied there was any rift.
Meanwhile Mr Carney said it was possible that new financial services trade deals struck by the UK with countries outside the EU could offset a loss of access to the bloc in “the fullness of time”, as cross-border financial flows involving emerging markets were likely to grow faster than European equivalents in the future.
The commons treasury select committee questioned BoE officials at the Farnborough air show, where they were speaking to companies.
But the committee’s first ever evidence session outside of Westminster threatened to turn into farce when the live audio stream of the hearing failed as MPs quizzed the BoE officials on the resilience of the financial services industry to IT problems.
– Copyright The Financial Times Limited 2018
