The Bank of England has called out EU officials for apparent duplicity, claiming they are presenting inaccurate and conflicting views of future UK regulation in a bid to persuade international banks to quit the UK.
Brussels’ regulators have been encouraging foreign banks to relocate their European headquarters by suggesting there will be a post-Brexit backlash against the City, a senior regulator at the Bank of England has revealed.
Sam Woods said “EU colleagues” had warned the head of a “large foreign bank” that the British public focus its ire on City bankers after the UK leaves the European Union.
Mr Woods, a deputy governor at the Bank, said: “[The foreign bank chief] had been advised by some of our EU colleagues that with the departure of the UK from the EU, the British public would become alarmed at the size of the financial sector relative to the size of the economy and would therefore demand ever-tougher financial regulation in order to assuage their sense of unease.
“Thus it was put to him that it would be sensible for him to move more of his operations to Paris, Frankfurt or Dublin, where things would be easier.”
Mr Woods made the remarks during a speech in London, where he dismissed suggestions of a post-Brexit backlash against banks. He said that after a decade of reforms following the financial crisis, the public would have little interest in upping financial rules “unless [the sector] blew up again”. As a result, regulation would be kept “roughly where it is now”.
Mr Woods noted the banker’s discussions with EU officials were at odds with his own conversations with European counterparts. He said that EU regulators told him they were worried about the UK slashing red tape, rather than increasing it.
Mr Woods said Brussels officials have told him they are concern the UK will start “weakening financial regulation” once it has left the European Union and that this will threaten the security of the financial system.
Neither scenario was plausible, Mr Woods insisted. Setting fire to a carefully crafted rule-book would be “anathema” to the Bank’s Prudential Regulation Authority, he added.
The policy maker also warned against the UK becoming a "rule taker" from Brussels in any scenario after Brexit, stressing it was important for the country to shape its own rules for the financial sector.
A situation in which “we stick with a system which looks exactly like what we have today” was not alarming. However, this could be “undesirable if it came with the prospect of becoming a rule-taker in financial services with all the risks – both prudential, and as a matter of industrial policy – that entails”, he said.
City lobbying groups are currently consulting with the Treasury on how best to pursue future trade in financial services with the EU. The exact trade off between levels of market access versus accepting oversight from Brussels remains unclear.
New Zealand-born Mr Woods is seen as a potential internal successor to Bank of England Governor Mark Carney, when he steps down next year.