09 August 2017

Financial Times: Banking watchdog warns of risks from cliff-edge Brexit

[...]Sam Woods, a deputy governor of the Bank of England, said an audit of worst-case contingency plans by banks and insurers had underlined fears of added cost and complexity for business and supervisors, should companies lose their EU “passport” with no time to adjust to a new regime.

The BoE’s Prudential Regulation Authority, which Mr Woods heads, and its counterpart, the Financial Policy Committee, will now analyse whether the collective execution of those worst-case plans — which include moving jobs and business from Britain — could pose risks to financial stability.

The PRA’s recent study of more than 400 contingency plans revealed that there were particular concerns over companies’ ability to service existing contracts, Mr Woods said in a letter to parliament’s Treasury select committee.

“Some form of implementation period is desirable, in order to give UK and EU firms more time to make the necessary changes to adjust to the UK’s new relationship with the EU in an orderly way,” said his letter, which was published on Wednesday.

Philip Hammond, the chancellor, has led a push in cabinet in favour of a transition period of up to three years after Britain officially leaves the EU in March 2019. But a number of ministers, including Liam Fox, international trade minister, have warned that an implementation period retaining freedom of movement would run counter to the spirit of last year’s Brexit vote.

Michel Barnier, the EU’s chief Brexit negotiator, has cautioned that there could be no certainty over a transition deal until the framework for a future relationship was agreed.

Mr Woods’ letter is published a week after the BoE cut its forecasts for UK economic growth and left interest rates unchanged, warning that persistent uncertainty over Britain’s future relationship with the EU is holding back business investment and household spending. [...]

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