Bank of England Governor Mark Carney called for Britain and the European Union to reach a sweeping deal to recognise each others’ bank rules after Brexit, or risk a potentially damaging hit to financial services across Europe.
Speaking at Thomson Reuters’ London office, Carney said the outcome of Brexit for financial services would be a “litmus test” for global banking rules and warned against the temptation to try to put up barriers to capital flows.
“The United Kingdom has been at the heart of the global economy for centuries. Throughout that period the City has channelled the life blood of the world economy, finance,” he said in a speech.
“It is all too easy to give into protectionism, but the road less taken is often the most rewarding.”
Banks, including many from the United States and other countries around the world, use London as their base for operating across the European Union, making the British capital the biggest financial centre in the region by far.
But their EU “passports”, which enable them to operate throughout Europe from a single office in London, are set to be lost once the UK pulls out of the bloc in two years’ time.
British hopes of securing a generous new deal are likely to be contested by politicians in many EU states who were jolted by the decision of British voters last year to leave.
Recognising the risk of future barriers, Carney said banks had to be ready for a “hard” Brexit and set a July 14 deadline for all cross-border finance firms operating in Britain to tell the BoE how they would cope with an abrupt EU exit.
It is not just banks that cluster their EU operations in Britain which face risks.
European firms which operate in London via EU passports should be prepared to set up separately capitalised subsidiaries in Britain and submit to BoE regulation if Britain and the EU cannot reach a deal, the BoE’s top banking regulator Sam Woods said on Friday.
Banks are making contingency plans but Carney said they should not rush to leave London. “In my view it would be extreme to take precipitate action.”
Lenders are concerned that Britain and the EU will not reach a deal in time for Brexit which is due in two years’ time, and are preparing to move staff from London. Germany and France are trying to lure jobs to their financial capitals.
HSBC, UBS and Morgan Stanley have decided to move about 1,000 staff each from London in the next two years, sources familiar with their plans have said.
Goldman Sachs said last month it would begin moving hundreds of people as part of its contingency plans.
Prime Minister Theresa May mentioned the importance of reaching a trade deal with the EU that includes financial services as a “crucial sector” when she triggered the two-year process of Britain’s exit from the EU last week. — Reuters
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