Brexit fallout on finance will take years, says Bank of England

© Reuters. FILE PHOTO: The Bank of England (BoE) building is reflected in a sign, after the BoE became the first major world’s central bank to raise rates since the coronavirus disease (COVID-19) pandemic, London, Britain, December 16, 2021. REUTERS/Toby Melville

By Huw Jones

LONDON (Reuters) – It will be years before the full impact of Brexit on Britain’s financial sector is fully known as more activity could leave London for the bloc or other centres like New York, Bank of England Deputy Governor Jon Cunliffe said on Monday.

Britain left the EU’s orbit on Dec. 31, 2020, ending the financial sector’s unfettered access to the EU and about 7,500 financial jobs have left London for the bloc, a fraction of what was predicted by some consultants.

“What the impact will be I think will play out. It’s not finished yet, there is still a transfer of business potentially going on,” Cunliffe told the House of Lords’ European Committee.

“It will be a number of years before you see the impact.”

The full impact on finance, which accounts for about 10% of Britain’s economy, partly hinges on the extent to which the EU will shut out Britain’s derivatives clearing houses to EU customers after June 2025, Cunliffe said.

A European Central Bank review of trading desks and trade booking models may also require banks to shift more staff from London to their EU operations in the bloc.

The ECB review could also change the economics of banking business models and trigger further, more strategic shifts in activity, and not necessarily to the EU, Cunliffe added.

Some London-based derivatives trading has moved to New York rather than the EU, and Britain should not keep its rules aligned with the bloc in the hope of unfreezing market access, he said.

“I think dealignment will happen just with the natural evolution of regulation,” Cunliffe said, referring to reviews of UK insurance and market rules now underway.

Brussels has yet to approve a new forum for British and EU financial regulators to discuss upcoming rules because of clashes over how Britain is implementing the Northern Ireland Protocol.

Cunliffe said that in the longer term the bloc has no reason not to trust the quality of UK financial supervision or think that Britain would discriminate against EU firms in a crisis.

“That, bluntly, is absurd,” Cunliffe said.