Wednesday 6 January 2021 4:10 pm

Brexit: BoE boss hits out at EU stance on equivalence for UK financial services

Bank of England governor Andrew Bailey has slammed the EU for how it has handled decisions on the UK’s post-Brexit access to EU financial markets.

Bailey told a Westminster committee today that Brussels’ demands to the UK Treasury on potential future regulatory decisions were “problematic”, before adding: “I fail to see why people would want to close themselves off from open markets.”

Boris Johnson’s Brexit trade deal does not include an EU-wide arrangement for financial services, with UK firms instead having to negotiate a patchwork of individual EU nations’ regulations.

The only way the City of London can maintain its pre-Brexit access to the EU is if Brussels unilaterally grants regulatory equivalence, however the bloc believes the UK is destined to diverge from its financial services regulations and has withheld the designation.

Treasury minister John Glen is set to lead talks with the EU this week to strike a “memorandum of understanding” by March that will guide future regulatory cooperation on financial services, however equivalence is not expected to be on the table.

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Speaking to the Treasury Select Committee today, Bailey said: “I think it would be much better for both sides if we have open markets and therefore certainty that way, but if we don’t then of course the markets and firms will evolve.

“Particularly on financial services, because we’re a global financial centre.”

The EU has asked the UK Treasury for extra information on its intentions for future financial services regulations.

The Bank of England governor said this demand was “problematic” and that there was three potential reasons for it – “only one of which is sensible”.

“The first motivation would be the EU thinks the rules should never change – that’s obviously mad and I don’t believe that’s what they think because they actually review and change their own rules,” Bailey said.

“Secondly, they think our rules should only change when their rules change and we’ve discussed this many times – this would be rule taking, which we obviously don’t support. 

“The third one, the sensible one, is that both of us will change our rules when it’s sensible to do so, we’re both transparent about it, but obviously we’ll be transparent at the time and transparent to everybody. It’s nothing unique and that seems to me the sensible basis and that’s the basis to judge equivalence.”

The UK decided in November to allow the EU to largely maintain its access to UK financial markets, however Brussels did not complete its equivalence assessments before the Brexit transition period ended last week.

Brussels did grant equivalence for UK clearing houses to continue operating temporarily, which was considered necessary to protect financial stability.

The City of London exported £25bn of services to the EU in 2019, which is almost half the total amount of financial services exported by the UK that year.

Miles Celic, chief executive of financial services lobby group The CityUK, said the upcoming UK-EU memorandum of understanding talks were vital even if equivalence was not on the table.

“There’s a strong relationship with the EU after working together for four decades and it’s important that there is a structure for information sharing and cooperation,” he said.