Sir Jon Cunliffe, one of the Bank of England’s most senior officials, has warned that Britain keeping its financial services passport will be a “painstaking process.”
Speaking in front of the House of Lords’ EU Affairs Sub-Committee on Wednesday morning, Cunliffe, who is the bank’s Deputy Governor for Financial Stability, and one of the nine members of the Monetary Policy Committee, Britain could end up creating its own version of the EU passport to allow financial services firms to operate in the European Union.
But he said this “would be a painstaking process that would be part of a much bigger negotiation with the EU.”
Cunliffe reassured senior politicians that it is unlikely that the City of London will completely lose its place at the centre of Europe’s financial sector even if the UK does end up losing its financial passport.
In recent weeks, it has started to look increasingly likely that the UK will opt for heading for a so-called “Hard Brexit.” This scenario would see the UK leave the EU without negotiating any form of membership of the single market, the economic trading bloc that forms the core of the EU.
Membership requires countries to harmonize their financial rules, accept the free movement of European citizens, and pay into a central budget, conditions which are unlikely to be accepted by British Eurosceptics. Jens Weidmann, the president of Germany’s Bundesbank, said in September: “Passporting rights are tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area.”
This is causing a lot of sleepless nights in the City, with top bankers worried that the loss of passporting would lead major banks to move elsewhere, with Frankfurt, Paris, and Dublin all seen as likely options.
European cities are so serious about these changes that the German government is reportedly considering altering a major employment law in the country to make Frankfurt a more attractive destination for banks and financial services firms post-Brexit.
However, Cunliffe sought to address those worries on Wednesday, saying that the “idea that it [banking in the City] just moves somewhere… the idea the ecosystem just transplants itself is highly unlikely.”
Cunliffe said that doing so, and in the process “putting up barriers,” would push up costs for financial services across the continent, benefiting no one.
He also looked to soothe worries about the potential loss of the clearing of euro denominated trades to the City. European policymakers have been determined to strip London of its stranglehold on euro clearing for many years, but have intensified their efforts since the Brexit vote.
Cunliffe says that doing so would simply be far too complicated and costly to be worthwhile. “I can understand the politics around this but what we’re talking about is the technicalities of multi-currency infrastructure and the benefits of a compression in margins. If we fragment clearing, the costs will go up across the system.”