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Mark Carney has presented a menu of EU regulations that the UK could roll back after Brexit, suggesting that a cap on bankers’ bonuses, an element of insurance regulation and the full weight of rules on challenger banks and building societies could all be removed.
Insisting that such changes to financial regulation would not amount to a “race to the bottom”, the governor of the Bank of England on Wednesday laid out rules the UK could change after it leaves the EU.
“There are things we don’t think are necessary,” Mr Carney told a London audience when asked whether the City would become a “Singapore-on-Sea” after Brexit. “There are areas we would make changes but within the context of maintaining the overall levels of resilience.”
Mr Carney suggested the UK might expand its financial services sector from 10 times its GDP to between 15 and 20 times during the next few decades.
The City is divided as to how much divergence from Brussels’ rules the UK should contemplate as Brexit looms in March 2019. Some say it is an opportunity to cast off overly burdensome regulations, while others believe it is important to tack close to the EU because retaining access to the single market could hang on whether the bloc deems the UK to have an “equivalent” set of rules.
More widely, countries such as the US are examining whether there needs to be a recalibration of the vast swath of rules introduced in the wake of the financial crisis.
Mr Carney also chairs the Basel-headquartered Financial Stability Board, which makes recommendations to the G20 countries and whose prominence expanded during the crisis. He said on Wednesday that the FSB and others needed the “self-confidence” to re-examine rules that are not working or have not been calibrated correctly, otherwise there was a risk of those rules fragmenting around the world.
The BoE and the UK’s financial regulator, the Financial Conduct Authority, have insisted there will not be a “bonfire of regulations” after Brexit. In a speech that preceded his comments, Mr Carney on Wednesday eschewed light-touch regulation, arguing that it led directly to the crisis.
But Mr Carney’s statement is the clearest signal yet that the UK authorities think some areas are ripe for reform.
The UK and the EU have long clashed over the bonus cap, with the UK threatening to legally challenge the measure before eventually introducing it.
Equally, there have long been questions about the fairness of the so-called risk margin, an element of the EU’s Solvency II insurance rules that were introduced nearly two years ago.
Most strikingly, Mr Carney confirmed that UK regulators do not think that the full weight of global rules for banks should be applied to building societies and challenger banks.
“We think in general there should be more proportionate regulation,” Mr Carney said, building on previous comments made by his deputy and the UK’s top banking supervisor, Sam Woods.
Mr Carney was speaking at an event to mark the two-year anniversary of the FICC Market Standards Board, which was set up in the wake of a series of scandals that tainted the City’s reputation, including the rigging of foreign-exchange and Libor benchmarks.
The BoE and FCA confirmed on Wednesday that Sonia, another reference rate, will be used as an alternative to Libor after that benchmark is phased out in 2021.
The head of the FCA, Andrew Bailey, called time on Libor, or the London Interbank Offered Rate, earlier this year, saying it was not fit for purpose. Banks and inter-dealer brokers paid nearly $10bn in fines as a result of the Libor-rigging scandal.