Two top Bank of England (BOE) officials suggested that the UK financial system’s rules may have to diverge from the European Union’s after Brexit — a topic that’s becoming as a major point of contention between the two sides.
Outgoing Governor Mark Carney told Parliament that Britain’s view of EU regulation may change over time, especially since it will no longer be able to help set the rules.
Jon Cunliffe, his deputy for financial stability, said the departure might be needed to better serve the City of London, even as he called for “good faith” on both sides.
The access of London financial services firms to the EU is set to be a key battleground in the UK’s negotiations with the bloc. Banks are concerned that once Britain leaves the EU, they will no longer enjoy the automatic rights that allow them to operate freely across 27 member states.
Michel Barnier, the EU chief Brexit negotiator, rebuffed UK calls for a so-called permanent equivalence arrangement to allow firms continued access to the single market. “Certain people in the UK should not kid themselves about this,” he said.
The UK Treasury had included the demand in a draft of its opening positions for next month’s trade negotiations — some of which were revealed in a document that was photographed as Chancellor of the Exchequer Sajid Javid carried it in Downing Street. While the BOE is not part of the negotiations, its officials have repeatedly said that Britain shouldn’t be a rule taker after Brexit. The theme again reverberated through Carney’s comments.
“If you’re not at the table to set the rules, it’s unlikely that those rules are going to be exactly what you think they should be,” he told a House of Lords committee. “There’s just a conceptual challenge with not being there. Those risks will just grow with time.”
Cunliffe, meanwhile, said that the EU had more to gain than lose from a relationship with London, calling for “partnership rather than rivalry.” Still, he recognized that as a third country, the UK would lose its involvement in developing regulations, which could force the need for divergence.
The UK left the EU on January 31 and is now in a transitional period lasting until the end of the year, under which existing EU rules will continue to operate.
Prime Minister Boris Johnson has insisted he wants to finalise a new trade deal before the
transition phase runs out and has ruled out any extension to the negotiations. If the two sides fail, the UK will crash out of the bloc and default to trading on terms set by the WTO.