The governor of the Bank of England said the European Union's post-Brexit requirements to grant market access for financial services are unrealistic.
"The EU has argued it must better understand how the U.K. intends to amend or alter the rules going forwards," Andrew Bailey said at a virtual event hosted by the City of London on Wednesday. "This is a standard that the EU holds no other country to and would, I suspect, not agree to be held to itself."
The comments underline the gulf between the U.K. and the bloc around so-called equivalence rulings on whether each side's rules are robust enough to enable seamless access for financial services. EU officials have said the bloc's in no rush to make these decisions. Talks slated to end in March center around a path forward for cooperation, and have mainly symbolic relevance.
Without equivalence in place, London-based finance firms that wish to do business inside the EU are saddled indefinitely with the added complexity and cost of supporting operations in both the U.K. and the bloc. Assets and jobs have begun to shift to the continent and the continuing uncertainty has been a source of frustration for the finance industry, one of the key pillars of the U.K.'s economy.
The lack of equivalence is fragmenting markets and "raises the costs of finance for everybody including, by the way, the citizens of the EU," Mr. Bailey said. "So I think it's a mistake."
Still, Mr. Bailey said that equivalence wasn't worth securing if the cost was "rule-taking pure and simple." Instead, he referred to global cooperation and pointed to three areas where the U.K. was looking at diverging from EU regulations:
- No longer applying Basel rules to small banks that aren't internationally active
- Excluding software assets from measurements of bank capital
- Review Solvency II rules for life insurers.
Mr. Bailey also joined William Russell, the lord mayor of London, in emphasizing Brexit wouldn't usher in an era of low regulation and tax cuts.
"None of this means that the U.K. should or will create a low-regulation, high-risk, anything-goes financial center and system," Mr. Bailey said.
Mr. Russell, a former investment banker who is serving an extended two-year term in the honorary role due to the pandemic, called for London to remain open to international business and talent and embrace new sources of growth, such as financial technology.
"This emphatically does not mean pushing for sweeping deregulation and tax cuts," Mr. Russell said at Wednesday's virtual event, which stood in for a black-tie dinner. "High regulatory standards are one of our biggest advantages, and can continue to support innovation in areas like fintech and green finance."
The pair aren't the only figures to caution against quick changes to Britain's financial rulebook now that the country has split from the European Union. Last week, Barclays CEO Jes Staley said deregulation wasn't the way to maintain London's competitiveness as a global financial center.
Boris Johnson's government has been laying the groundwork for an eventual overhaul to regulation of the industry, which was largely absent from the U.K. trade deal with the EU signed in December. The sector generated a record £75.6 billion ($103.8 billion) in tax in the year to March 2020, which amounts to over 10% of the country's tax receipts, according to a report from the City of London Corp., which administers the financial district.
Mr. Bailey said he was confident London's position was secure.
"I believe we have a very bright future competing in global financial markets underpinned by strong and effective common global regulatory standards," he said. "Now is not the time to have a regional argument."
