Carney spreads Christmas cheer with Brexit assurances for EU banks

Bank Of England Inflation Report Press Conference
Mark Carney rolled out the red carpet for EU banks in the UK (Source: Getty)

The governor of the Bank of England (BoE) has attempted to spread a little festive cheer after the EU's chief Brexit negotiator insisted that a financial services deal was off the table. In response to Michel Barnier's position (which saw him dubbed "Scrooge" by City lobbyists yesterday) Mark Carney has assured EU banks that they will be able to operate as normal in the UK with or without a Brexit deal.

Highlighting the importance of the City to European businesses, Carney today told the Treasury select committee that the UK's financial system was "effectively the banker for Europe".

"I don't accept the argument that just because [a financial services trade deal] hasn't been done in the past you can't do it in the future. We would just walk away from progress if that were the approach we took to issues," Carney said in a riposte to Barnier's suggestion that a bespoke deal would not be made for the City because none currently exist.

Read more: Bah humbug: City hits out at Barnier hard talk on Brexit trade deal

The comments came as the BoE announced European wholesale banks and insurers would be able to apply for authorisation to operate as a branch in the UK after Brexit, rather than a subsidiary with higher capital requirements.

The firms, which account for £4 trillion of the UK market, currently operate as branches within the EU's Single Market, but the BoE's plan would in effect create a special regime for European banks compared to other third countries.

However, Carney told MPs that if supervisory cooperation between the UK and EU were to break down: "We would require them to subsidiarise."

The City welcomed Carney's "pragmatic" move and the clarity it provided for businesses.

“This development would provide greater certainty that businesses always crave. We are pleased to see this development and it is now up to our politicians and regulators to make sure this is delivered," said Catherine McGuinness, policy chair at the City of London Corporation.

Bruce Carnegie-Brown, the chairman of Lloyd’s, said the "proactive approach to the supervision of international insurers... would help the continuity of business through the post-Brexit implementation period".

"This will provide greater certainty to insurers and UK policyholders, reinforcing London’s position as the world’s leading insurance centre. This is a very positive development, which will contribute to financial stability to the benefit of all parties in the insurance sector," he said.

Miles Celic, the chief executive of TheCityUK, called on the EU to offer similar reassurances for UK institutions on the continent, while Stephen Jones, chief executive of UK Finance, said Carney had sent a "clear signal, both in the EU and beyond, that the UK is taking a thoughtful and measured approach to the practical challenges around navigating Brexit".

The Prime Minister also threw her support behind Carney, telling parliament she wanted to retain London's position as a "financial centre for the world".

“This will be, of course, part of the negotiations on phase two of Brexit," she said.

Theresa May also appeared before the powerful Liaison committee, where she said there will be a greater recognition of the role the City plays in European finance as negotiations progress.

May faced a grilling over Brexit by the committee, which is comprised of MPs who chair Commons select committees.

The PM was insistent that she could finalise a free trade agreement with the EU before the March 2019 exit date because of the UK's current position as a member state. "We haven’t got a situation where country A is coming to negotiate with the EU not having had any arrangements with the EU before," she said.

Earlier in the day, May said she would allow a short delay to the UK's departure from the EU under "exceptional circumstances".

“We would only use this power in exceptional circumstances, for the shortest possible time,” she said.

Read more: BoE plans lighter regulation option for EU banks after Brexit

Related articles