The Governor of the Bank of England, Andrew Bailey, on Tuesday (10 February) urged the EU not to wage a regulatory battle against the UK on financial services, warning that “a world in which the EU dictates and determines what rules and standards we have in the UK is not going to work.”
In a speech to London financial executives, Bailey expressed concerns that the EU’s position was to wait until it could “better understand how the UK intends to amend or alter the rules going forwards”.
“This is a standard that the EU holds no other country to and would, I suspect, not agree to be held to itself,” the Governor added.
Although the UK’s exit from the EU Single Market has forced many firms to move some of their services out of London and set up operations in other financial hubs likes Frankfurt and Paris, London remains Europe’s main financial centre and the UK’s main industry, contributing over 10% of its tax revenues.
The trade and cooperation agreement between the UK and EU, which came into force on 1 January, does not cover financial services meaning that the UK is no longer able to “passport” its services across the bloc after the EU refused to agree to ‘mutual recognition’ of the UK’s financial service laws.
Instead, it includes only a joint declaration on financial services regulatory cooperation and a commitment to agree a Memorandum of Understanding (MoU) establishing a framework for future cooperation by the end of March.
The joint declaration states that this would include transparency and appropriate dialogue in the process of adoption, suspension and withdrawal of equivalence decisions.
But UK officials have also complained in recent weeks that the European Commission is dragging its feet over granting ‘equivalence’, under which the EU executive decides if a sector meets standards of regulation, despite the fact that the UK currently applies the same financial service regulations as the EU.
Bailey added that the UK had no intention to move towards a “low regulation, high risk, anything goes financial centre and system”, though loosening regulation has been one of the demands of hard Brexiteers ever since the 2016 referendum.
The Bank of England, which also serves as the regulator of UK financial services, has begun a review of insurance regulation and rules for small banks.
Earlier this month, TheCityUK, an industry lobby group, urged UK and EU officials to quickly agree on the MoU. In addition to an agreement on equivalence, the lobby group also called a long-term data adequacy agreement, mutual recognition of professional qualifications, cross-border enforcement of judgments in civil and commercial disputes, and greater clarity for UK/EU business travel, all of which are not covered by the post-Brexit trade deal.
[Edited by Frédéric Simon]