Weakening rules for banks and insurers after Brexit would be “anathema,” but Britain could change its style of regulating to respond faster to change, Bank of England Deputy Governor Sam Woods said on Thursday.
“So as far as the stringency of financial regulation goes, we at the Bank have a clear view of what would make sense for the UK in a post-Brexit environment: we should keep it calibrated roughly where it is now and have no desire whatsoever to weaken it,” Woods said at a conference in Switzerland.
Britain has been forced to postpone Brexit twice and is still struggling to agree on the terms of its departure from the European Union before the next deadline, Oct. 31.
Regulators want to head off calls from some lawmakers for a Brexit “dividend” that ditches some financial rules.
Britain’s finance ministry, parliamentary Treasury Select Committee and the Financial Conduct Authority have begun reviews of financial regulation after Brexit.
The bulk of rules applied in Britain come from the European Union, and some lawmakers say Brexit would allow Britain to revise its rules to keep London competitive as a global financial center. The Bank of England and the Financial Conduct Authority have poured cold water on that idea.
Much will hinge on what form of access to the EU market Britain secures after it leaves the bloc.
Woods said it would be undesirable if Britain became a “rule-taker,” meaning it continued to apply EU rules in some form, echoing FCA Chief Executive Andrew Bailey, who said last month that rule-taking would be “dangerous.”
Britain faces a tricky trade-off.
The EU’s default system of financial-market access for foreign companies is based on “equivalence” — aligning with the bloc’s rules — so any major divergence in UK rules could jeopardize access.
Brussels has begun toughening up equivalence conditions now that it faces a huge, foreign financial center on its doorstep, forcing it to consider how much access to grant Britain after Brexit.
While Britain should not compromise on stringency, it could change the style of regulation, Woods said.
The EU favors detailed rule-making given the need to create a single rulebook across 28 countries, Woods said. In Britain, parliament has traditionally approved overarching changes, leaving the day-to-day application to regulators.
“Alternatively, we could adopt a hybrid approach which doesn’t replicate either of the pre-existing EU or British approaches,” he said. “Once you open this box, the possibilities are legion.”