Listen to this article
The Bank of England has demanded all City firms hand over their contingency planning over Brexit to make sure they are ready for a range of different circumstances.
Stagnant profitability of investment banks, increased legal complexity and disruptions to services are just some of the risks to financial stability posed by Brexit, no matter what the outcome, Mark Carney, the governor of the BoE said in a speech in London on Friday.
He added that the BoE’s Prudential Regulation Authority has written to all firms, from British stalwarts to subsidiaries of US investment banks to European-headquartered banks that use the so-called “passport” to access UK markets (you can read the letter here).
“The main purpose of this letter is to ensure that all firms are making, and stand ready to execute in good time should the need arise, contingency plans for the full range of possible scenarios,” Mr Carney said.
His comments come 10 days after the UK triggered the official two-year divorce proceedings to start leaving the EU.
The BoE repeated warnings earlier this week that financial stability could be jeopardised by increasingly complex structures that firms might choose to deploy as a way to get round new rules post-Brexit.
With Brexit and the election of President Trump, there is the possibility for deregulation and rolling back post-crisis reforms. Mr Carney, who also chairs the international Financial Stability Board, presented a stark choice: either countries turn inward, drying up liquidity and driving up prices for households, or “new pillars” of globalisation should be built.
“The outcome of the Brexit negotiations could prove highly influential in determining which path the global financial system takes,” he said.
Theresa May, the prime minister, won the backing of key eurosceptics earlier this week to make concessions to Brussels over a transitional deal to bridge the gap between Brexit and a new trade deal.
This would be a boon to the City, which has long expressed concern over the prospect of no transitional deal, which would leave firms with a “cliff-edge” moment.
But the nature of transitional arrangements, including to what extent City firms can continue to access the single market, will be a key bargaining chip in the negotiations.