The Bank of England said today that whilst “progress” has been made to prepare the UK financial sector for Brexit, it warns that “material risks” remain mostly because the EU had not made any progress on a similar regime that would allow EEA customers reliant on UK-based financial services companies to overcome barriers to cross-border provisions.
There’s been progress to avoid disruption to financial services during Brexit, but more needs to be done. The UK will legislate if necessary to avoid disruption. A technical working group has been established, chaired by the European Central Bank and the Bank of England. pic.twitter.com/xCABnqU0Ah
— Bank of England (@bankofengland) June 27, 2018
The European Banking Authority this week admitted that European banks were as yet unprepared for the consequences of the world’s largest financial centre no longer being under EU control.
Whilst the EU has been playing games with the British financial sector, it appears it has done little to protect its own banks and its own citizens.
The Governor of the Bank of England, Mark Carney, who actively warned the UK off Brexit throughout the 2016 Referendum, has today pointed to the significant consequences if the EU doesn’t begin to take the necessary steps the British have already taken.
The Bank of England said the EU’s inability to implement a post-Brexit regime posed considerable risks, citing £29 trillion in uncleared derivative contracts with parties in other jurisdictions that would become void if the March 2019 Brexit deadline was hit before legislation was passed by both the UK and EU to deal with the issue.
This is because those derivatives rely on cross-border co-operation and because the European Commission has failed to follow the UK’s lead and commit to an implementation period for finance, they would stop operating as normal.
The British banks, whose capital strength has tripled since 2007, are however, well-placed to handle even a “cliff-edge” Brexit. The UK economy is still one of the strongest within the EU and would be able to support the real economy post-Brexit.
If the EU is to allow its financial sector to properly compete with Britain, which its antagonistic behaviour towards the UK suggests, it must be willing to meet the UK half way on regulatory changes.
London alone currently processes approximately 75% of euro clearing transaction, worth a combined €1tn (£880bn) a day in an industry that employs thousands of people.
EU regulators must explain what is preventing them from taking the reasonable steps necessary to defuse this risk to the European financial system. They must focus less on the negotiating ambitions of Brussels and more on the needs of their citizens.