— BoE Governor Bailey confirms that Brexit preparations assumed no equivalence between UK and EU financial services
— Bank continuing technical assessment of negative rates, to publish results in February
By Laurie Laird
LONDON (MaceNews) — The UK’s top central banker is prepared to walk away from a financial services agreement with the European Union should the bloc impose onerous regulations on British banks seeking to operate on the Continent.
“I strongly recommend that we don’t become a rule taker,” said Bank of England Governor Andrew Bailey, addressing parliament’s Treasury Select Committee on Wednesday. “If the price of [equivalence] is too high …. We can’t just go for this whatever.”
The governor appeared somewhat rattled under grilling from Labour Member of Parliament Rushanara Ali, who pressed the governor on the future of the financial services industry in a post-Brexit world. While he admitted that the industry has “had a low rate of investment for the past decade,” he strongly opposed significant concessions to EU demands.
However, Bailey’s Bank of England colleagues, also appearing before the Committee, took a softer tone. “I don’t think we’re on [a] path” to having to accept EU-set financial services regulations, said Sam Woods, deputy governor for financial regulation. “Both sides need to evolve their rules.”
The UK left a transitional arrangement with the European Union on 31 December, after Prime Minister Boris Johnson struck a last-minute trade deal in goods during the closing days of the year. By the premier’s own admission, arrangements for financial services were “less comprehensive than I would have liked.”
Negotiators from the UK and the EU have set an end-of-March deadline for reaching agreement on “regulatory equivalence” allowing financial firms to operate across Europe. Bailey agreed that the timeframe was “feasible” when questioned by committee members.
While Bailey conceded that a “certain amount of activity has had to migrate” to continental Europe, he was quick to point out that “markets have been very stable over the past week or two,” which he attributed to careful regulatory planning that began shortly after the vote to leave the EU in June of 2016. That preparation assumed that the two sides would not agree a deal on regulatory equivalence before the UK left the EU’s single capital market, he added. No more than 7,000 financial services jobs have transferred to the continent as yet, far fewer than predicted in the aftermath of the Brexit vote, Bailey said.
The governor had little to say on monetary policy, repeating that the bank’s Monetary Policy Committee “hasn’t got to the point” of seriously considering negative interest rates, noting that any move toward negative rates would involve discussions with the Bank’s Financial Policy Committee and Prudential Regulation Commission, which oversee bank stability. The Bank reduced its base rate to a record-low 0.1% in March.
Negative rates “are rather less straightforward to [implement] for retail customers than corporates,” added Deputy Governor Woods, who has been leading a technical assessment on the feasibility of sub-zero rates. The Bank will publish the results of that inquiry as part of its February Monetary Policy Review, he added.