Governor’s warning over EU raid on bank trades
As Brussels eyes up lucrative ‘clearing’ market...
THE BANK of england governor yesterday accused the EU of risking a ‘serious escalation’ of its row with the city of london.
Andrew Bailey suggested Brussels was trying to poach business from london in the lucrative ‘clearing’ market, the process by which financial trades are settled.
He said the dispute over ‘equivalence’ – under which the EU and the UK would agree to recognise each other’s financial services rules so trading could continue – hid an attempt to steal business from Britain’s economic powerhouse.
Speaking to MPs on the treasury committee, Mr Bailey warned that if the EU continued in this vein ‘that would be highly controversial and that would be something that we would have to and want to resist very firmly’.
the london clearing House currently completes more than £1trillion of euro trades per day. Brussels has given the UK consent to keep clearing the transactions for EU firms until mid-2022.
But if officials in london and Brussels do not agree an equivalence deal, around
‘A very serious escalation’
25 per cent of this business in london would have to move to the continent because it involves EU companies.
Mr Bailey claimed it would not be viable for the EU to take a 25 per cent share because clearing houses work efficiently only if they have a large pool of business.
this means the EU would then try to poach more business from london, he said. it could do this by trying to set laws outside its own borders, which Mr Bailey said was ‘obviously of dubious legality’.
He told the MPs it was more likely that Brussels would try to ‘cajole’ banks into moving their business to the EU.
‘Probably the more likely way to do it ... is to say to firms “You need to move this business into our area and if you don’t we’ll think of something else to do”,’ Mr Bailey said. ‘that would be very controversial, frankly i think it would be a very serious escalation of the issue.’
He added that it would ‘clearly something we would be concerned about’ when looking at the UK’s financial stability.
December’s Brexit deal did not include an agreement on Britain’s vital financial services sector. Officials in the UK and the EU are trying to hammer out a deal on equivalence, to allow banks and other institutions in europe to keep doing business in london.
they are due to sign a memorandum of understanding next month to set out how their future relationship will run.
But Mr Bailey sounded increasingly pessimistic about the prospects of the two sides reaching an agreement on financial services equivalence. Addressing the memorandum, he said: ‘it is not going to lead automatically to equivalence.’
the governor has already insisted that the UK will not be forced to follow EU banking regulations.
in a major speech at Mansion House in the Square Mile he said this would be ‘unrealistic, dangerous and inconsistent with practice’ and the UK must be allowed to set its own rules.