Bank of England Governor Andrew Bailey has delivered a stark warning about the growing threat of European Union financial regulations to Britain's economic stability. In his most direct comments since Brexit, Bailey cautioned that Brussels' approach to financial rule-making could create "material risk" for the United Kingdom.
The Governor's intervention comes amid rising tensions between London and Brussels over financial services regulation. Bailey emphasised that while the UK remains committed to high regulatory standards, the EU's unilateral decisions could fragment markets and undermine stability.
The Core Concern: Regulatory Divergence
Bailey highlighted that the fundamental issue lies in the EU's increasing tendency to make rules without proper consultation with international partners. This approach, he argued, could lead to regulatory arbitrage and create vulnerabilities in the global financial system.
"What we cannot have is a situation where rules are made without proper regard to their international implications," Bailey stated during his address. He stressed that financial stability requires cooperation rather than fragmentation.
Specific Areas of Concern
The Governor pointed to several specific areas where EU rules could create challenges:
- Diverging capital requirements for banks
- Different approaches to derivatives trading
- Varying standards for investment firms
- Inconsistent market infrastructure rules
These differences, Bailey warned, could make it more difficult for UK and EU firms to operate across borders, potentially increasing costs for consumers and businesses.
Call for Cooperation
Despite the challenges, Bailey emphasised that the door remains open for constructive dialogue. He called for both sides to work together through international bodies like the Financial Stability Board to ensure consistent global standards.
"We must not let short-term political considerations override the need for financial stability," Bailey urged. "The consequences of getting this wrong could be severe for both UK and European economies."
Industry Reaction
Financial industry leaders have largely supported Bailey's comments, with many expressing concern about the increasing complexity of operating across different regulatory regimes. The warning comes as many City institutions are adjusting to post-Brexit realities and navigating new compliance requirements.
The Bank of England's intervention signals growing official concern about the direction of EU financial policy and its potential impact on London's status as a global financial hub.
