Brexit: Bank urges City to 'plan for all eventualities'

Mark Carney Image copyright Reuters
Image caption Mark Carney said the City of London was "Europe's investment banker"

The Bank of England has written to the UK's biggest financial firms, urging them to plan for "all eventualities" from the UK leaving the European Union.

Bank governor Mark Carney said the "vast majority" of City firms already had contingency plans in place.

However, he said that some financial firms still needed to prepare in case of a "more extreme" outcome.

In a speech, Mr Carney urged the UK and EU to recognise each other's bank rules after Brexit.

Prime Minister Theresa May triggered Article 50 last week, starting two years of formal talks on the UK's withdrawal from the EU.

Goldman Sachs, HSBC and UBS are among the banks that have said they will move some jobs out of London as a result of Brexit.

'Contingency plans'

The UK's central bank wrote to all banks, insurers and other financial firms with branches in the UK which operate in the EU.

It has given the companies three months - to 14 July - to explain what contingency plans they have in place.

In the letter, it says some companies may not be ready for the "most adverse potential outcomes". That would happen if a trade deal and interim arrangements were not in place when the UK leaves.

Mr Carney said: "Prudent planning means that you have to also plan for a shorter time horizon and a more extreme outcome.

"That in no way shape or form is saying that that's what our expectation is, and certainly we'll be absolutely clear that is not in the best interest of the EU 27 or the United Kingdom or the global system as a whole."

Asked if firms should move now, he said: "No, that's not the most prudent. It's prudent to be in a position to continue operating after the UK leaves."

The central bank has indicated it is largely happy with the large foreign banks' planning, but says the standard of contingency planning across the sector is uneven.

'Fork in the road'

Many US and European banks are based in London, offering their services throughout the EU under a process known as "passporting".

In a major speech on the impact of Brexit on the City, Mr Carney urged the UK and EU to strike a deal on UK-based banks offering services into the EU and vice versa.

Mr Carney said the two sides were "ideally positioned" to reach an agreement, because they currently have exactly the same bank regulations.

He also underlined the importance of the City of London to the EU, saying it was "Europe's investment banker" and a "global public good".

Image copyright Getty Images
Image caption The Bank governor called for the UK and EU to reach agreement on the City

The Bank governor said the City of London and other financial centres were at a "fork in the road" going into the Brexit talks.

"The outcome of the Brexit negotiations could prove highly influential in determining which path the global financial system takes," Mr Carney said in a speech at Thomson Reuters in Canary Wharf.

He warned against countries taking the "low road" where they turned inwards, cut back on regulations and did not work with other regulators.

This would lead to fewer jobs, lower growth and higher domestic risks, he said.

In the Brexit talks, the "high road is both readily attainable and highly desirable", he added.

But Mr Carney emphasised that he was not calling for a specific deal on financial services.

He said the industry was just "one sliver - albeit an important sliver" of the wider Brexit negotiations.

More on this story