Andrew Bailey has accused the European Union of holding the UK to standards it would “not agree to be held to itself” and said the UK would not be a post-Brexit “rule-taker”.
The EU has yet to grant “equivalence” status to the UK, instead demanding UK banks continue to comply with standards set in Brussels. The bloc has said it wanted to wait and see how far the UK’s new rules diverged from its own before agreeing to recognise them.
But the Bank of England governor noted in his Mansion House speech on Wednesday (10 February) that this was in contrast to all other countries the bloc has agreed trade deals with.
“The EU has argued it must better understand how the UK intends to amend or alter the rules going forwards,” Bailey said. “This is a standard that the EU holds no other country to and would, I suspect, not agree to be held to itself.”
The governor said there were two ways of interpreting the EU’s stance, “neither of which stands up to scrutiny”. The first was that the EU believes rules should never change, which he described as “unrealistic, dangerous and inconsistent”.
The second was that the EU would only grant equivalence if the UK agreed to change its rules whenever the EU did. This, Bailey countered, was “rule-taking, pure and simple”.
“It is not acceptable when UK rules govern a system ten times the size of the UK GDP and is not the test up to now to assess equivalence.”
The governor suggested that a common framework of global standards ought to be enough for both sides, noting that “less than this was enough when Canada, the US, Australia, Hong Kong and Brazil were all deemed equivalent”.
Bailey warned the UK, though, that the City must relinquish some control over its standards and rules, should the financial services industry want to agree a deal with its continental counterparts.
“The alternative of narrow domestic control is illusory – it would jeopardise achieving the very things we want, safe open markets, and likewise open economies. Above all, these bodies enable us to build the trust that enables our financial systems to stay open,” he said.
“But, we do not for a moment believe that we can maintain the arrangements we have without change. As the world around us changes, so too do we have to adapt how we achieve these public goods.
“Also, we do not participate in these global institutions with the intention to water them down, misguidedly because we think this would preserve some notion of our competitiveness as a nation. The UK could not be a global financial centre for long if we did.”