Tim WallaceWed, 10 February 2021, 6:08 pm
The Governor of the Bank of England has warned that the European Union is poised to lock Britain out of its banking market, in a move that would push up financial costs for millions of consumers on both sides of the Channel.
Andrew Bailey said that Brussels would be making a mistake if it refused to grant access for the City, with serious repercussions for ordinary people.
The decision could drive mortgage interest rates higher in Britain and Europe, result in more expensive currency deals for businesses that trade internationally, and hit households with steeper insurance premiums.
In response to a question from The Daily 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.”
London was shut out of the single market when the post-Brexit transition period ended, 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.
Mr Bailey’s remarks are a significant escalation in the row over British regulators’ determination to set their own finance rules after Brexit.
Meanwhile, frantic diplomatic efforts are ongoing to resolve tensions over trade arrangements for Northern Ireland, with a senior EU official last night appearing to rule out major changes.
Watch: Ireland’s new sea routes to EU trade 0:02 12:57 Shipping shifts: Ireland’s new sea routes to EU trade
Ahead of a meeting in London with Michael Gove today, 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 the Cabinet Office minister’s request for the special arrangements to be extended until January 2023, Mr Sefcovic 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.
Last night Whitehall sources reacted cautiously to the letter, noting that Mr Sefcovic had not rejected the UK’s proposals outright.
In his Financial and Professional Services Address, Mr Bailey pointed out that Brussels was 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.”
It came as data revealed that Amsterdam surpassed London as Europe’s largest share trading centre in January. An average €9.2bn (£8.1bn) of shares changed hands every day on the Dutch city’s Euronext exchange last month, according to the Financial Times, more than the €8.6bn in the City. Brussels has banned EU-based finance firms from trading in the UK, forcing them to go elsewhere.
However, the City of London dominates the world’s multi-trillion-dollar currency markets and far out-ranks other hubs in Europe. Financial services contributed £132bn to the British economy in 2019, a sum which has been eyed jealously by EU politicians.
A financial 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 greater access to other countries around the world.
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 forward. 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 made sense, Mr Bailey said, if rules were either not allowed to change – which the Bank chief called “unrealistic, dangerous and inconsistent with practice” – or if Britain had to obtain 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.
British regulations could be changed to free small, UK-only banks from rules designed for international lenders, he said, something which is common practice in the US and Switzerland, which are still deemed to be equivalent by the EU.
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.
‘A world in which the EU dictates what rules and standards we have in the UK is not going to work’