The Bank of England governor has made an impassioned plea for politicians not to give in to protectionism on banking rules when negotiating the UK’s exit from the EU but to keep an open financial system.
A week after Theresa May triggered article 50, formally beginning the process of the UK withdrawing from the EU, Mark Carney used a speech on the financial system (pdf) to challenge those who want to cut the UK’s access to the rest of Europe after Brexit.
Carney sought to portray London as a key part of the global financial system and reiterated his earlier claim that “London is Europe’s investment banker”.
He said that repair work to the financial system since the global crisis had made it safer, simpler and fairer and that the UK had gone beyond the minimum global standards, meaning others could others could rely on it as a “pillar of strength for the international monetary and financial system”.
But describing Brexit negotiations as a “litmus test for responsible financial globalisation”, Carney suggested such gains were now at risk.
“A decade of hard fought financial reform creates enormous opportunities,” Carney said in a speech at Thomson Reuters in London’s Canary Wharf on Friday.
“It is all too easy to give into protectionism, but the road less taken is often the most rewarding.”
Carney also called on all firms with cross-border activities between the UK and the rest of the EU to prepare for all eventualities as Brexit negotiations get under way and set them a deadline of 14 July to outline those contingency plans.
He made his case for an open financial system by describing a high road and low road.
“We are at a fork in the road,” Carney said.
“One path builds on the foundations of a new responsible global financial system that are being put in place … The high road leads to more jobs, higher sustainable growth, and better risk management across the G20,” he said, referring to the G20 group of mainly rich nations.
“But there is another path – the low road – where trust and cooperation diminish, fragmentation hardens, capital flows are disrupted, and trade and innovation are curtailed.”
Carney has previously warned that European economies could be damaged if their access to the City of London is disrupted after Britain leaves the EU. On Friday he reiterated that more than half the equity and debt raised for European governments and business was raised in the UK.
A key concern for financial firms is whether the UK will still hold passporting rights that allow British-based banks and insurers to do business with the rest of the EU after Brexit. Carney said banks should get plans in place for all possible outcome of Brexit negotiations.
Alongside Carney’s speech the Bank published a letter sent to all banks, insurers and other financial firms calling on them to put contingency plans in place for Brexit.
Sam Woods, the Bank’s deputy governor for prudential regulation and head of the Prudential Regulation Authority, wrote in the letter: “Many firms are well-advanced in their planning and have engaged closely with the PRA as part of that process. However, our current assessment is that the level of planning is uneven across firms and plans may not be being sufficiently tested against the most adverse potential outcomes.”