The Bank of England (BoE) has issued a fresh warning that Brexit could make it more difficult to regulate City firms.
The boss of its Prudential Regulatory Authority (PRA), the arm of the Bank responsible for regulating banks and insurers, claims that any added complexity will place a “material extra burden” on its supervisory arm.
PRA boss Sam Woods revealed the Bank’s latest assessment after more than 400 financial services firms responded to its request for details on their contingency planning.
He has given new Treasury Select Committee chair Nicky Morgan advance sight of the main points of concern, ahead of a full analysis to be published in the autumn.
In the letter to Morgan, revealed this morning, Woods said a large number of firms were considering restructuring to mitigate risk after leaving the EU.
This would create more complex corporations with “strongly inter-connected entities between the UK and EU” that could make the industry more difficult to oversee, he claimed.
“We need to ensure that these structures do not impede supervis-ability or resolvability,” Woods warned.
He said this would place a “material extra burden on the PRA’s resources” and posed a “material risk to our objectives”.
He added: “This work is therefore a top priority. It is incumbent on us to manage this burden but we may have to make some difficult prioritisation decisions in order to accommodate it.”
Morgan responded: “The UK leaving the EU is a complex task. The potential extra burden on the PRA’s resources, and the risk that may pose to its objectives, is an issue that I’m sure the committee will want to monitor.”
Woods reiterated the need for a transitional period after Brexit “in order to give UK and EU firms more time to make the necessary changes to adjust to the UK’s new relationship with the EU in an orderly way”.
UK Finance boss Stephen Jones told City A.M. his members highlighted the need for a transitional agreement and voiced their concerns over what would happen if bilateral talks ended without a deal in place.
“Securing an early agreement on comprehensive transition arrangements will influence these plans and help ensure that the industry can continue to serve retail and institutional clients on both sides of the Channel.”