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--UK Financial Sector Regulators Strive For Mutual Recognition With EU
By David Robinson
LONDON (MNI) - Bank of England officials and other financial sector
regulators have been exploring UK-EU regulatory alignment and mutual recognition
options to help mitigate the impact of Brexit, MNI understands.
But while this could approach work for banks, there are formidable
obstacles seen in extending it to the financial sector as a whole.
One challenge for officials looking into maintaining the alignment of UK
and European Union regulatory regimes has been identifying institutions that
could monitor compliance post-Brexit.
People familiar with the work told MNI that while things are relatively
straightforward for banking, which has a well-developed supranational regulatory
structure, it is a lot trickier in other areas, including insurance.
The UK government, beset by political infighting, has so far avoided
stating clearly whether it wants financial sector regulatory alignment or
Despite the lack of political clarity, UK and EU regulators, described by
one insider as a tight-knit bunch who have, in many cases, known each other for
decades, have to crack on and try and map out options irrespective of what is
happening in the official Brexit negotiations.
Regulators on all sides are aware of the dangers of fragmenting European
finance and raising transaction costs.
Andreas Dombret, Member of the Executive Board of Deutsche Bundesbank, said
at a London School of Economics event Feb 8 that it was essential financial
services remained legally accessible for the German economy.
"We have worked together very closely in the past and I don't see any
reason why this should change," Dombret said.
But the Bundesbank official also said that he worked from the motto of
"hope for the best, prepare for the worst," warning the final deal between the
UK and EU could be quite limited, with financial services excluded.
In a blunt comment in a speech earlier in the day at a UK Finance event he
said "I am sceptical as to whether a ... mutual recognition framework is
One inside source on the UK side privately acknowledged that regulatory
alignment would entail that the UK was effectively a rule taker, rather than a
rule maker: a red flag for hard-core Brexit supporters.
For the banking sector, the Basel Committee on Banking Supervision already
provides a forum for regulatory cooperation and there is technical expertise in
place to monitor compliance. It is elsewhere in the financial sector that a lot
of spadework would need to be done.
Despite the difficulties, UK regulators are not about to give up on the
idea of achieving some form of mutual recognition.
Andrew Bailey, chief executive of UK regulator the Financial Conduct
Authority and a former Executive Director of the BOE, noted in a Feb 5 speech
that the European Commission is not opposed in principle to a bilateral deal
based on comprehensive regime convergence -- as it has already proposed a UK-EU
one for the fishing sector.
The stakes are high for the UK. If the financial sector is hit hard when
the UK finally leaves the EU there could be a substantial hit to tax revenues
Leaked estimates from a document prepared for the Cabinet suggested that
non-tariff barrier costs alone, under various Brexit scenarios, would hit
financial services output by 5-10%. The financial and insurance services
sector's contribution to GDP, gross value added, has ranged in the past decade
between 7.2% and 9.1% and its contribution to total tax receipts is sizeable.
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