BoE's Carney says Brexit a test for global financial system
- Author: Zachary Reyes Apr 07, 2017,
Apr 07, 2017, 16:50
The currency stayed lower after Bank of England Governor Mark Carney urged banks to get contingency plans in place for all potential Brexit outcomes.
He set a July 14 deadline for cross-border finance firms operating in Britain to tell the Bank of England how they would cope with an abrupt European Union exit.
Sam Woods, the Bank's deputy governor for prudential regulation and head of the Prudential Regulation Authority, wrote in the letter: "Many firms are well-advanced in their planning and have engaged closely with the PRA as part of that process".
The letter asked firms to respond to the letter with a summary of Brexit contingency plans addressing "a wide range of scenarios" and plans to apply for authorisation if required.
Carney sought to portray London as a key part of the global financial system and reiterated his earlier claim that "London is Europe's investment banker".
Carney's speech on financial services, delivered at Thomson Reuters in London's Canary Wharf on 7 April, comes a week after the United Kingdom triggered Article 50 and commenced the two-year period for negotiating its exit from the EU.
"It is all too easy to give in to protectionism, but the road less taken is often the most rewarding", he said.
He made his case for an open financial system by describing a high road and low road.
In a major speech on the impact of Brexit on the City of London, Mr Carney said the negotiations would influence how banks are regulated.
"The outcome of the Brexit negotiations could prove highly influential in determining which path the global financial system takes", Carney said.
It would lead to "more jobs, higher sustainable growth, and better risk management across the G20".
"Trust and cooperation diminish, fragmentation hardens, capital flows are disrupted, and trade and innovation are curtailed", he said.
Carney warns the latter option would lead to fragmented pools of funding and liquidity, reduced competition and impeded cross-border investment.
The pound fell versus the dollar after data Friday provided more evidence that the U.K.'s decision to the leave the European Union may be starting to weigh on its economy.
Financial services account for 7 percent of British economic output, according to the BoE, although industry lobbyists say this rises to 12 percent if related professional services companies are included.
"The combination of robust worldwide standards and trust built through transparent implementation and intensive supervisory cooperation can create a system of enhanced equivalence and mutual deference", the governor said.
Carney also said Britain would "work hard" with European authorities to ensure that an "appropriate amount" of euro business continues to be cleared in London.