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www.telegraph.co.uk/business/2021/02/10/dont-cut-city-bailey-warns-brussels/
EU poised to lock Britain out of its banking market, Andrew Bailey warns
Bank of England Governor warns that millions of households could face higher finance costs
Bank of England Governor Andrew Bailey has warned that the European Union is poised to lock Britain out of its vast banking market, in a move that would push up the cost of finance for millions of consumers on both sides of the Channel.
Mr Bailey said that Brussels would be making a mistake if it refuses to grant access for the City - with serious repercussions for ordinary people.
The decision could drive mortgage interest rates higher, land businesses which trade internationally with more expensive currency deals, and hit households with steeper insurance premiums as everyday financial products depend on activity in big international markets.
In response to a question from the Telegraph after a speech to finance chiefs, Mr Bailey said: “Is the EU going to cut the UK off from itself? There are signs of the intention to do so at the moment, but I think that would be a mistake. I think that would lead to the fragmentation of markets.
“The problem with the fragmentation of markets is that it raises the cost of finance for everybody, including by the way the citizens of the EU. It will raise the cost of doing business in the EU, so I think it is a mistake."
The remarks are a significant escalation in the row over UK regulators' determination to set their own finance rules after Brexit.
They come amid frantic diplomatic efforts to resolve tensions over trade arrangements for Northern Ireland, with a senior EU official on Wednesday night appearing to rule out major changes.
Ahead of a crunch meeting in London with Michael Gove on Thursday, Maros Sefcovic, the European Commission vice-president, appeared to acknowledge that grace periods handed to supermarkets, chilled meat importers and parcel couriers could be extended.
But in a letter responding to Mr Gove’s request for the special arrangements to be extended until January 2023, he suggested that they would need to remain temporary and that supply chains would ultimately need to adjust to full customs checks.
Hitting back at criticism from the UK over the EU’s approach to the new system, he also highlighted areas where he claimed the Government was not yet living up to its commitments.
On Tuesday night Whitehall sources reacted cautiously to the letter, noting that Mr Sefcovic had not rejected the UK’s proposals outright.
In his speech, Mr Bailey pointed out that Brussels is attempting to force Britain to follow tougher rules on finance than those applied to other trading partners such as the US and Switzerland. The Governor said that the EU would never accept such demands if asked to follow them itself.
He said: “I cannot really tell you where the EU is going to come out on this, but I’m afraid a world in which the EU dictates and determines what rules and standards we have in the UK is not going to work.
“We have to state the argument for why it is important to have global standards, global markets and safe openness. If we all sign up to that, then there isn't a need to go in that direction."
London was shut out of the single market when the post-Brexit transition period ended last year, severing links with the Continent. Much of this access could be restored through the EU's so-called equivalence regime, but Brussels is dragging its heels over giving permission for this in key areas.
The City is a major global financial centre, dominating the world’s multi-trillion dollar currency markets and far out-ranking other hubs in Europe. Financial services contributed £132bn to the British economy in 2019, a prize which has been jealously eyed by EU politicians.
A centre of such scale must be able to set its own rules, the Governor said, within the worldwide framework which has grown in importance since the financial crisis.
So far the UK has granted the EU “equivalence” status to access British markets in several areas, while the EU has reciprocated in only very few, despite offering more access to other countries around the world.
In his Financial and Professional Services Address, Mr Bailey said: “It would be reasonable to think that a common framework of global standards combined with the common basis of the rules – since the UK transposed EU rules from the outset – would be enough to base equivalence on global standards. Less than this was enough when Canada, the US, Australia, Hong Kong and Brazil were all deemed equivalent.
“The EU has argued it must better understand how the UK intends to amend or alter the rules going forwards. This is a standard that the EU holds no other country to and would, I suspect, not agree to be held to itself.”
This stance only makes sense, he said, if rules are either not allowed to change - which Mr Bailey calls “unrealistic, dangerous and inconsistent with practice” - or if Britain has to get Brussels’ permission to change the rules, which “is not acceptable”.
The Governor said he did not want “a low regulation, high risk, anything goes financial centre and system”, but that it was important rules could be improved.
UK regulations could be changed to free small, UK-only banks from onerous rules designed for big international lenders, he said - something which is common practice in the US and Switzerland, which are still deemed to be equivalent by the EU.
Mr Bailey added: “We have an opportunity to move forward and rebuild our economies, post Covid, supported by our financial systems. Now is not the time to have a regional argument."
Meanwhile the Governor is expected to face further questions in a letter from MPs on the Treasury select committee after clashing with a former judge over evidence he gave at a hearing on Monday.
Dame Elizabeth Gloster, a former judge who authored a damning report into the response of the City regulator to the London Capital and Finance scandal under Mr Bailey’s leadership, said she disagreed with parts of the Governor’s testimony.
She insisted that the Governor was wrong when he told MPs he did not try to avoid being named as an individual with responsibility for failings at the Financial Conduct Authority. Mr Bailey had said his request was only in respect of findings of culpability of blame.
Dame Elizabeth declined to comment on how she believes the committee should respond to the conflict between her evidence and Mr Bailey’s but her spokesman said she was “happy to support the committee as needed with its inquiry”
Whitehall sources said that Mr Gove was expected to stress the need for “urgent progress” on Northern Ireland, and for the EU to recognise the problems being felt by businesses and people living in the region.
There are growing fears that some food producers have halted exports to the region due to new red tape.
The Government is understood to be considering introducing legislation that would force large businesses to export to all parts of the UK, in order to stop firms giving up on Northern Ireland.