BOE gives warning of ‘material’ risks to finance sector

Brexit and ‘global vulnerabilities’ could disrupt the industry, central bank warns

By The Bank of England (BOE) gave warning yesterday that Brexit and “global vulnerabilities” still posed “material risks” to Britain’s financial services industry.

The Bank’s financial policy committee (FPC), which monitors systemic risk and economic growth, said progress had been made but that further action was necessary in areas where the UK and European Union needed to make joint commitments.

In its statement, the FPC said: “Since November, in the United Kingdom, progress has beenmadetowardsmitigating risks of disruption to the availability of financial services.

“Nonetheless, material risks remain, particularly in areas where actions would be needed by both the UK and EU authorities.”

The Bank has previously stated that, to preserve the continuity of existing crossborder insurance and derivan atives contracts, UK and EU legislation would be required.

Six million UK policyholders, 30 million European Economic Area (EEA) policyholders, and around £26 trillion of outstanding uncleared derivatives contracts could be affected.

The FPC said yesterday: “While the outlook for global growth has strengthened further, there are material risks associated with interest rate volatility. The principle risks are in debt markets.”

It added: “Against that market backdrop, risks stemming from corporate debt in the United States have continued to build. Financial vulnerabilities in China remain elevated.”

Yesterday’s development came the day after another of Britain’s financial regulators, the Financial Conduct Authority, warned lenders to strengthen their credit checks, saying that even “the slightest sign of rough weather” in the economy could put a significant number of households in financial distress.

The FCA’S Jonathan Davidson told credit firms at industry event that they should do more forwardlooking credit checks to make sure borrowers can afford repayments.

Despite the FPC’S cautionary tone yesterday, it repeated that Britain’s banks had the capital buffers to withstand any potential cliff-edge Brexit and continue supporting the UK economy.

The FPC also stressed that Britain’s current account deficit was still disproportionately large compared to other countries across the globe, increasing the nation’s reliance on the confidence of foreign investors.

Bank governor Mark Carney warned in the lead-up to the Brexit vote in June 2016 that the UK relied on the “kindness of strangers” in order to finance the country’s needs.

On the rise of cryptocurrencies, the FPC said the likes of Bitcoin did not present a risk to financial stability.

However, the watchdog stressed that standards would have to be enforced on payments and exchanges if any one digital currency emerged as a widely-used form of payment.

mflanagan@scotsman.com