April 26, 2018, 7:26 pm
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AFTER BREXIT: Carney calls for UK-EU bank rules pact

LONDON - Bank of England Governor Mark Carney called on Friday for Britain and the European Union to reach a sweeping deal to recognize 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.

Recognizing 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 HSBA.L, UBS UBSG.S and Morgan Stanley MS.N have decided to move about 1,000 staff each from London in the next two years, sources familiar with their plans have told Reuters.

Goldman Sachs GS.N 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.

But many bankers have said they are not convinced the government will prioritise their industry, with May making controls on immigration a top aim.

Carney said he expected financial services to be part of a “bigger deal” on trade between Britain and the EU.

He warned of the potential hit to the economy in Europe from a hard Brexit for banking, saying it would be tough for other EU countries to match the scale and expertise of Britain. “That’s very difficult to replicate,” he said.

To reduce the risk of disruption, the Britain and the EU should take “the high road” of mutually recognizing their financial rules, allowing companies to operate smoothly across the English Channel as they have done until now.

“The EU and UK are therefore ideally positioned to create an effective system of deference to each other’s comparable regulatory outcomes, supported by commitments to common minimum standards and open supervisory co-operation,” he said.  – Reuters 
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