UK Edition
City backs Carney with plan to keep finance open after Brexit
British banks and finance firms should still be able to access EU markets after Brexit as long as regulators are prepared to cooperate with each other, preventing a cliff-edge collapse in cross-border trading, an advisory body has said.
Global rules are already in place and should be used as a template by the UK and EU authorities to avoid shutting London’s financiers off from the Continent, the City of London Corporation’s International Regulatory Strategy Group (IRSG) has urged.
It follows a speech from Bank of England Governor Mark Carney last week in which he said the global financial system “is at a fork in the road” and the UK could push either for an open, trading, global Brexit, or a closed option in which cross border financial services are restrained.
The finance industry has been worried about being cut off from the EU ever since the Brexit referendum, which came as a major shock to a sector which has come to rely on easy access to EU markets, and operates as a gateway for global businesses entering Europe.
EU regulators block access to firms from outside the union unless they set up subsidiaries regulated within the EU, or if their home regulations are deemed equivalent to EU rules - in the jargon, the financiers would lose their “passport” to operate across the EU.
While the UK would start off as equivalent with exactly the same rules as the EU, that could change over time.
Financiers initially feared there was no way around this other than for the UK to agree to follow EU rules, despite having no say in the way they are set.
But now the City of London Corporation argues that there could be a path to continued “mutual recognition” after Brexit, if a free trade agreement carefully sets the right framework for financial services rules.
Both the UK and the EU base their regulations on global rules from groups such as the Basel Committee in any case, and so should be able to agree a way to continue cross-border business with no great disruption, the group believes.
“A joint UK-EU committee or forum could be established to make sure that regulation and principles of supervision are monitored as they evolve over time. It should also assess the impact of divergences, for example consulting on new legislation before it would be brought into effect,” the IRSG proposed.
“If the members of the new committee fail to agree on the impact of divergences, a dispute resolution model would be necessary to deal with disputes between the UK and EU.”
That could be a group made up of international regulators, such as the Financial Stability Board, the City of London Corporation said.
The group also wants the financial services sector to get priority when it comes to immigration, as the companies hire highly-skilled workers from across the world.
Agreeing this new setup may take time, however, so the IRSG also wants a transitional agreement put in place, avoiding any hard cut off in 2019 when Brexit takes place.
Mark Carney warned that the alternative to co-operation and globalisation would be a move to more fragmented financial system and less international trade and investment.
He said it risks resulting in “less reliable and more expensive financing for households and businesses, and very likely lower growth and higher risks in all our economies".