The Bank of England’s financial stability boss has warned policy makers not to cut financial regulation in the aftermath of Brexit, but said less detailed regulation should be a feature.
Speaking in London this morning (May 7) Sir John Cunliffe, the bank’s deputy governor for financial stability, said the central bank is confident that even in a no deal Brexit the banking system in the UK would prove resilient, though he would expect some volatility.
He said the two major risks to financial stability after Brexit are if the UK financial services sector is within the same regulatory structure as the EU but has no say over how future regulations are made, or if the UK decides to cut regulation once it has left the EU.
Mr Cunliffe said: "Pressure to weaken regulation post Brexit would create financial stability risks: the FPC has made clear that given the size and complexity of its financial sector post Brexit the UK will need a level of resilience at least as great as that currently planned, which itself exceeds that required by international baseline standards."
But he added that while he doesn’t want to see dramatic change, he believes there is scope to make the regulation less rigid.
He said: "Much of our financial sector legislation and regulation has been made at the EU level. This has increasingly taken the form of extremely detailed EU primary and secondary legislation directly applicable in member states.
"This approach has been justified as necessary in the EU by the need to prevent divergences between member states. The cost, however, as some have observed, is an over complex and rigid regulatory framework.
"As a preparatory step for Brexit, Parliament has ‘onshored’ EU legislation and regulation and also the allocation of responsibilities that lie behind it.
"At some point, post Brexit, we will, I think, need to address this rigidity and hard wiring of detail to ensure we have a coherent, effective and flexible regulatory system with appropriate accountability.
"How we do that will have an impact on how we address risks, at firm and at system level, in a fast changing financial system."
Mr Cunliffe’s comments come after the chief executive of the Financial Conduct Authority, Andrew Bailey, ruled out a return to light touch regulation after the UK exits the EU.