Carney Sounds Warning on UK Being a 'Rule Taker' After Brexit

Carney evidence to Treasury Select Committee

Above: File photograph of Bank of England Governor Carney before the Treasury Selecy Committee. Image (C) Pound Sterling Live, Parliament TV.

The Governor and other senior officials of the Bank of England have warned against the UK financial services sector being governed by Europe, as would be the case under the evoking of the backstop scenario contained in the existing UK withdrawal proposal or under an alternative EEA membership plan.

The warnings from Mark Carney comes as the UK parliament engages in a five-day debate which will likely focus heavily on the merits or otherwise of the UK becoming a rule-taker in the event of a backstop clause being invoked in the current Withdrawal Agreement.

Under such a scenario, the UK would effectively be a member of the EU customs union and single market in order to ensure no hard border is erected on the island of Ireland. But because the UK loses its right to make decisions in the European Union, the UK's financial sector would effectively be governed by Europe.

"We would be uncomfortable not having some flexibility to ensure that it (the UK's financial sector) is appropriately regulated and appropriately supervised. We would not be comfortable, outsourcing supervision of this incredibly complex, incredibly important financial sector," says Carney.

Carney and other officials from Threadneedle Street were giving evidence to parliament's Treasury Select Committee about a BoE report on the potential economic impact of Brexit in Britain's parliament on Tuesday.

Carney adds:

"The risk of being a rule taker goes up big time as per Mr Woods's earlier comments. From a financial perspective, from a financial stability perspective, it's highly undesirable to be a rule taker and to lose supervisory autonomy for any considerable length of time."

Questioned on whether the Norway model (EEA) membership, could be an alternative solution, the answer from Deputy Governor Jon Cunliffe was similar:

"I think our financial sector is about 20 times bigger than Norway's. It's much more connected internationally, it's much more complex. So in terms of just how the EEA works, and my understanding of the EEA de facto if not de-jure EU laws are adopted by the EEA countries and written into the EEA annex and have force of law policed by the ECJ, that scenario, I think for a financial sector this large, this complicated, would be as governor says, quite uncomfortable."

With a list of alternatives Brexit styles being debated in the UK political class the EEA model has emerged as a strong contender. 

The model would see the UK slip into an EEA membership while a future trading arrangement is agreed.

However, it is clear that even this scnario would require a backstop to be applied in order to avoid a hard border being erected in Ireland.