Bank of England deputy governor Sir Jon Cunliffe has warned the European Union that it will need to maintain close financial ties with London if it wants “to be part of global pools of capital and liquidity” after Brexit.
He was also bullish about London’s future prospects, saying that although markets could transfer to EU jurisdiction, it would “not be likely and if it did happen it would not happen quickly”.
It came after chancellor Sajid Javid said in City A.M. today that Britain would not be a “rule-taker” after Brexit when it came to financial services, given the strength of the City.
Javid said the government would seek to keep regulatory autonomy while seeking a “reliable equivalence process” on which a “durable relationship” can be built.
Under a system of equivalence, the EU would deem Britain’s rules to be in alignment with the bloc’s and vice versa, allowing financial services trade to continue unaltered in agreed sectors.
However, many in the City are wary of such a system as the EU could unilaterally bring the equivalence mechanism to an end, as it has done with Switzerland.
Yet Cunliffe, who is deputy governor for financial stability at the BoE, today told a conference in Berlin that it was in the EU’s interests to maintain hassle-free access with the City.
“While one should be careful not to overestimate it, London is important to the EU,” he said. “It is the major financial centre in which the EU meets the rest of the world.”
He said Brexit “will not change the fact that if the EU economies want to be part of global pools of capital and liquidity, if they want to hedge their risk in the broadest possible markets, trade in the deepest possible markets and establish a global role for the Euro, they will need to meet the rest of the world somewhere”.
“The EU has, in my view, more to gain than lose from access to the markets, expertise and concentration of financial activity in London – from partnership rather than rivalry with the global financial centre on its doorstep.”
Javid said in City A.M. today that ministers are working on a comprehensive plan that will set out a vision for the financial services sector once the Brexit transition ends at the end of this year.
He also re-committed to concluding “a full-range of equivalence assessments” – which will lay out the level of alignment the UK desires – by June.
However, in a sign of the difficult negotiations ahead, Javid’s comments provoked a terse reaction from Brussels. The EU’s chief Brexit negotiator said it “cannot be business as usual” after the transition period ends in December.
“There will not be general open-ended ongoing equivalence in financial services,” he said.