Carney’s speech on financial services, delivered at Thomson Reuters in London’s Canary Wharf on 7 April, comes a week after the UK triggered Article 50 and commenced the two-year period for negotiating its exit from the EU.
“The UK and the rest of the EU have exactly the same rules governing our systems,” Carney (pictured) said. “And we have the most highly developed frameworks for intensive supervisory cooperation. Capital flows seamlessly across our borders. The current EU legal regime allows firms to passport throughout the union, supervised by the home supervisor.”
As it stands, the EU and the UK are “ideally positioned to create an effective system of deference to each other’s comparable regulatory outcomes, supported by commitments to common minimum standards and open supervisory cooperation”.
Such an outcome would be “entirely consistent” with the UK government’s aim of a “new, comprehensive, bold and ambitious: free trade relationship with the EU that “embraces goods, services and network industries”.
But financial services are only part of a much broader negotiation, Carney conceded, so contingencies need to be put in place in case the status quo changes.
He said: “How the Brexit negotiations conclude will be a litmus test for responsible financial globalisation.”
“Whatever is agreed [during Brexit negotiations], there are risks to financial stability both in the transition to the new relationship and in the new steady state. These risks include disruption of services, a further weakening of investment banking profitability and the potential for greater complexity in firms’ legal structures.”
“Increased complexity would place greater demands on firms’ risk management and on supervisory oversight, and pose challenges for effective resolution. We expect firms to plan accordingly.”
Financial services have proven to be an early point of contention between the UK and the 27 other EU member states, with a German politician recently reviving the prospect of legislating to require euro currency clearing to be carried out in the eurozone.
The prospect won’t fill the City of London with joy, as the loss of its ability to clear euro-denominated transactions would put hundreds of thousands of jobs at risk, according to a recent report from EY.