Britain should not submit to the European Union’s financial services rules just to get better access to the bloc’s market after Brexit, Bank of England Governor Andrew Bailey said on Wednesday.
European daily share trading worth 6 billion euros ($7.36 billion) left the City of London for the continent this week in the first tangible sign of Brexit’s impact on Britain’s 130 billion-pound ($176 billion) finance industry.
Bailey said Britain must not become a mere “taker” of EU rules in return for access.
“If the price of this is too high then we can’t just go for it whatever,” he told parliament’s Treasury Committee.
“I strongly recommend that we don’t become a rule-taker. If the price of that is no equivalence … then I am afraid that will follow.”
Britain left the EU’s single market last week and its new trade deal with the bloc does not cover financial market access.
Britain and the EU are committed to agreeing a memorandum of understanding by the end of March on cooperation in financial rules to unlock equivalence-based access.
The EU has asked Britain about its intentions to diverge from the bloc’s rules, which could make it harder for Brussels to grant equivalence-based direct access for the City of London.
Leaving the EU has given Britain the chance to drop rules it had to follow until now.
Bailey said Britain would not introduce a new EU rule that allows banks to deduct the value of software investments from capital requirements.
BoE Deputy Governor Sam Woods said solvency rules for insurers also needed to be reformed.
Bailey said the EU’s drive to be more self-sufficient in financial services was shaping its decisions on equivalence.
“The question is: are they going to do it? Is this the time when they do it? Because it hasn’t happened to date in many areas,” he said.
Bailey said equivalence should be based on Britain having regulation that achieves similar outcomes to that in the EU, rather than following it to the letter, something the EU has not required for other jurisdictions.
He said the EU’s broader approach to financial services trade with Britain appeared focused on boosting some less competitive financial businesses in the euro zone, rather than seeking the best value financial services for businesses.
“I fail to see why people would want to close themselves off from open markets,” Bailey said.
Bailey said between 5,000 and 7,000 financial services jobs had already left Britain for the EU - fewer than some forecasters had feared, though the process was not over.
He had warned in December of potential Brexit disruption in markets such as the relocation in euro stock and derivatives trading which has fragmented markets.
But he said the markets had been very stable. “The markets were broadly expecting what they got,” he said.